Finance Minister Edward Scicluna yesterday ruled out the introduction of a second pillar pension – a form of national insurance paid by the employer and employee – or the raising of the pensionable age.
Speaking during the debate on second reading of the Income Tax (Amendment) Bill, Prof. Scicluna said the government would introduce the third pillar system through two voluntary schemes.
In the first, people would be able to invest €1,000 a year until their retirement.
Such packages, offered by insurance companies, must satisfy certain criteria.
Those who wished to invest but needed to withdraw money when they required, may opt for the second scheme: the individual savings scheme.
Under this scheme, people may deposit €1,000 in a bank or in corporate bonds every year and would not be subjected to a 15 per cent withholding tax.
Money could be withdrawn when required.
The government sought to assist those who were unable to save any money
The government sought to assist those who were unable to save. Therefore, people could either invest €1,000 (which would remain fixed until the age of retirement) or deposit €1,000 in an individual savings account.
If employees opted for one of these schemes, they would enjoy two pensions: the government’s and their private one.
Earlier, Prof. Scicluna said Malta used the straightforward PAYE system, where one only needed to ensure there were enough funds from national insurance contributions to pay pensions. Otherwise there would be a pension gap. If there was a deficit it would continue to grow, which was why so many were concerned about future pensions.
Malta had an ageing population, and the percentage of retirees would eventually be larger than the contributors. This would mean either a higher national insurance contribution or a smaller pension, or else the government would have to incur further debts to cover the gap, which would only lead to bankruptcy.
Alarm bells about pensions had been building up since the mid-90s, with warnings from both the EU and the IMF. The discussions had started under the previous administration and after 10 years, there was finally a reform.
It was a surprise that the Opposition was now expressing amazement that the government had not introduced the obligatory second pillar. The private sector had always said that this was not the right time.
The government was being prudent, he said, and was monitoring the situation demographically through a model to map the birth and death rates, as well as immigration flow.
EU membership meant that people of other nationalities now lived and worked in Malta just like the Maltese worked abroad. There was also the reality of irregular immigration, a “tsunami” of nationals coming here from the African continent who were also placing a burden on the country, so it was unrealistic to expect that the population would not grow.
The economic growth was being projected at three per cent. Therefore, one also needed to see the positive outcome of this estimate.
The free childcare centres and other incentives had shown an increase of female participation in the workforce. This was another factor one needed to consider.
The debate continues.