The government’s stand over pensions, COLA

Malta is objecting to two country specific recommendations drawn up by the EU economic and financial affairs council dealing with the retirement age and the cost-of-living wage adjustment.

It is not only Malta that has expressed reservations over some of the council’s recommendations, made in a bid to improve the EU countries’ budgetary and economic reform programmes. However, at their latest meeting in Brussels last week, finance ministers endorsed the proposals, leaving the island the only country standing its ground over the two recommendations to which it objects.

Both the Prime Minister and the Finance Minister have spoken lately of the government’s firm stand over the matter but it would seem it is time for them to explain the objections in greater detail. The government will also do well to publish any expert opinions it may have sought on both subjects so that the people would know exactly the grounds for the objections.

In the recommendation over pensions, the council is specifically calling on the government to take action, “without further delay”, to ensure the long-term sustainability of the system, a matter that has been raised not just by the European Commission but by other foreign and local organisations for a number of years now.

Malta is being asked to make “a significant acceleration of the progressive increase in the retirement age compared to current legislation, establish a clear link between the statutory retirement age and life expectancy, and take measures to encourage private pensions savings.

The council also wants Malta to take measures to increase the participation of older workers in the labour force and discourage the use of early retirement schemes, often used to bail out commercial entities in trouble, as was the case of Malta Drydocks and, now, of Air Malta. The dockyard is now in private hands and Air Malta is restructuring itself after running into financial losses.

The government is arguing that it has already taken steps to raise the retirement age and does not see the need to go any further at this stage.

A thorny issue, one that crops up practically every time the government decrees a wage rise at Budget time to make up for the rise in the cost of living, is whether or not the index on which the rise is based ought to be changed. In the council’s view, this should reflect developments in labour productivity and reduce the impact of prices of imports on the index. But, again, the government does not agree with the recommendation, arguing that it is technically faulty because the mechanism will become meaningless if imports are taken out of the equation.

The argument presented by employers over this most sensitive issue is that the rise ought to be tied to productivity, which makes a great deal of sense. The allowance is given across the board, placing financially weak firms, or firms in the process of restructuring, under undue stress, if not in difficulties. In other words, it can be highly disadvantageous to the workers as it could lead to their dismissal.

The government argues that the system ensures industrial stability. But for how long can the system operate in the way it is run today without jeopardising competitiveness? Unless rises are backed by productivity, the time will come when employers could simply not afford paying the rise, unless by raising prices, which could be counter-productive.

What was the outcome of the efforts made within the Malta Council for Social and Economic Development some time ago to tweak the index?