Finance Minister Edward Scicluna yesterday sought to allay concerns over the future of pensions and their sustainability, saying the situation was “not alarming”.
Addressing a business breakfast on the subject, Prof. Scicluna acknowledged there was an issue but stressed that Malta was still in time to “tweak” its pension system.
Employers speaking at the event stuck to their 10-year-old position in objecting to the introduction of a mandatory second-pillar pension which they argue would burden them with more costs.
The business breakfast at Intercontinental Malta was organised by The Business Observer, the business newspaper published with Times of Malta.
The 2004 Pensions Working Group appointed by the government had recommended the introduction of a ‘second-pillar’ pension, paid in part by the individual and in part by the employer, to supplement the first-pillar State pension. However, this idea had been shelved by previous governments.
Prof. Scicluna yesterday said the Labour government was not looking at this option either, focusing instead on a voluntary third-pillar option and giving people incentives to save for their future.
The introduction of second-pillar pensions would be “counterproductive”, Malta Employers’ Association director general Joe Farrugia insisted. “Introducing it now would mean a substantial cost that employers would have to incur and forces employees to save when they cannot necessarily afford it. This is why we are not in favour of introducing the second-pillar pension right now,” he said.
We do not have to become alarmist just because the European Commission said we had to address our pension system
But Prof. Scicluna rebutted by saying that if future pensioners did not have enough purchasing power, this would adversely affect businesses which, he believed, had to be “long-sighted”.
He said the sustainability of pensions depended on two ingredients: economic growth and good public management, while “the rest is detail”.
Various measures were being introduced to have the government in “a straight jacket” in terms of fiscal responsibility and accountability.
There were plans to have a June report on the previous year’s financial results and a draft budget in October before the proper budget. “There will no longer be any secrecy about the budget.”
The government was focusing its efforts on increasing economic growth and addressing the national debt, which at 73 per cent was a “contingent liability”.
“It would make a big difference if we managed to reduce the national debt by 20 per cent over a 20-year period, for example. Rather than wait for years for a big reform, we can tweak the present system every two or three years.
“We do not have to become alarmist just because the European Commission said we had to address our pension system. Europe has a one-size-fits-all approach. We are monitoring the situation and are aware of it and ready to take all the action that is required,” Prof. Scicluna said.
Saying that the first-pillar pension in Malta was high when compared to other countries, Prof. Scicluna acknowledged that people had to be “aggressively encouraged” to start saving up for their future and start thinking about income security.
However, he cautioned that overdoing the savings could affect economic growth.
Parliament is currently debating the introduction of third-pillar pensions, which will have two forms: one scheme would be a savings account while the other would be a proper pension account that cannot be withdrawn before pensionable age.
He said people will have the option of whether to invest in banks or State or corporate bonds.
There was no agreement yesterday on whether to go for private pension plans or continue with the present system. There was, however, one thing everyone agreed upon: the need of more public awareness so people could make the best choices for their future.