By the end of this year, an 11-member team of professionals, policy-makers and academics will design a national strategy for financial literacy after completing a study of Maltese people’s knowledge of monetary matters.
We need to correct the perception that the state will provide
The Commission on Financial Literacy and Retirement Income was established just weeks ago on the recommendation of the Pensions Working Group following a report last March. Set up by the Ministry of Justice, Dialogue and the Family, the commission’s brief is to raise levels of financial education and capability across Maltese society.
“Financial literacy is normally used in connection with personal finance matters such as real estate, insurance, investing, saving, tax planning and retirement,” the commission’s chairman David Curmi told The Sunday Times.
“The absence of financial literacy can lead people to make poor financial decisions that can have adverse effects on their financial health. Retirement decisions are often considered too complex for people to solve on their own, particularly as many people may have low financial capability. In many countries, general financial incapability has led to significant shortfalls in retirement savings.”
Mr Curmi, chief executive of life assurance company MSV Life plc, explained that people were unable to decipher how much to save for their retirement and eliminate risk in later years. This often stemmed from a lack of understanding of what they expected to receive in state pension monies and how much they needed to set aside on top of that to ensure an adequate income after they retired.
The Maltese people’s attitude towards retirement planning and voluntary provision is not very different from that prevalent in other nations, Mr Curmi explained.
“What we need to correct is the perception that seems to prevail that the state will provide,” he emphasised. “Every person should have access to easily understandable and meaningful information about their future state pension entitlement and how extra voluntary provision can be made. The task of ensuring that people understand how much they need to save for retirement is far easier where people have a good understanding of the financial issues involved.”
Pension reform, he added, was not an easy task for any government. Ageing populations are among the greatest challenges facing Western economies. Governments across the European Union are trying to design ways to reward people for a lifetime of work as birth rates fall and average population age rises, as the proportion of workers to retirees falls, and as more people become dependent on state-provided healthcare and long-term care.
As one of the last EU states yet to implement measures to encourage voluntary provision for retirement to supplement a state pension, Malta is likely to face increasing pressures to reform its pension system in the short term.
Mr Curmi believes Malta could benefit from late mover advantages and learn from other countries’ mistakes, but the time has come for the island to speed up the pension reform drive which began a few years ago. People need to understand that they will need higher levels of savings to see them through increased life expectancy after retirement.
“What every citizen expects is a comprehensible state pension system that does not stifle voluntary provision,” the commission chairman added.
“In establishing a national minimum, a state pension should leave room and encouragement for voluntary provision within a prescribed and robust regulatory framework. With most of us expecting to live for at least 20 years in retirement, significantly higher personal savings will make a considerable difference to our standard of living.”
The commission’s final strategy aims to reach across communities. In collaboration with education authorities, the commission will study the possibility of including money management skills in the Personal and Social Development programme in schools.
A series of public information campaigns will involve various media channels and target schools, colleges, the university, work places, trade unions, business and employer representatives, and local councils.