Up to only a generation ago it was part of the national culture for people to save. Even those earning low wages used to somehow save a bit for a rainy day. People thought more than twice before going into debt and few dared take risks, calculated or otherwise. But, generally speaking, and excluding the swathe of people who were unemployed or destitute, most had a modicum of financial responsibility drilled into them by parents.
However, mores and circumstances have changed, with the savings habit no longer considered as important by an increasing number of today’s generation as it used to be in the past. To those with this frame of mind, it is as if tomorrow never comes. Young people want things here and now. The world of business does not make it easier for them either to come down to earth and start taking good care of what they earn. On the contrary, it makes sure, through advertisements, that they spend every penny they have. One bank had gone so far as to offer loans for holidays.
The head of an insurance company, David Curmi, was not saying anything particularly new when he drew attention to the fact that Maltese are saving less, spending more and not planning for their pension. Others have said the same thing before but Mr Curmi is also proposing a national education campaign, with the government taking the lead. He argues Malta is one of the few countries in Europe that still does not encourage voluntary savings.
His argument is that, although the government has now done its bit by coming out with a Bill for the introduction of the third pillar pension, there is a need to start educating people on how to start putting money aside for their pension to save them facing hardship when they retire. In other words, the State pension will not be enough for them to live the life they had been accustomed to unless this is supplemented by another pension or income from investments made during their working life.
In truth, the incentive that the government is planning to offer under the third pillar (15 per cent of the value of the contribution made in one year or €150, whichever is the lower) is far too little and is therefore unlikely to be of any encouragement.
Employers have been strongly resisting the possible introduction of the second pillar and the government is not very interested in it either.
This leaves the State contributory pension and the third pillar. Which is why it is important for the savings habit to pick up again. With interest rates having fallen to such low levels, many may be discouraged from saving but there are other ways in which savings can be made to earn a higher rate. This includes investing in government stock or in bonds and shares, though, in this case, one would have to be prepared to take some risks. New local bond issues have come into the market this year and more are expected to follow this year.
Bond, share and stock issues are invariably oversubscribed, indicating there is a healthy appetite for investment by that segment of the population that takes good care of its money. However, since there will always be workers who are unable to take up private pension schemes, or are unable to save, it is important for the State to ensure that the contributory pension is adequate to enable pensioners to live a decent life.