The pensions gap has been halved since it was last calculated several years ago when the previous government was considering reforms to make pensions sustainable and adequate.

Finance Minister Edward Scicluna announced during the recent annual dinner organised by ifs-Malta that the World Bank had concluded an exercise to update the pensions liability, which had now been submitted to the European Commission.

“Remedial action does not need to be as extensive as previously assumed,” Prof. Scicluna said.

The minister did not give any other details in his speech.

However, the ministry subsequently confirmed that the model took several factors into account which had changed since previous calculations.

In 2004, the World Bank had warned that the welfare gap would pose problems. In 2002, the pensions deficit was two per cent of GDP and was forecast to rise to 3.5 per cent of GDP by 2015, and 4.7 per cent by 2030.

The gap was calculated on the basis on total contributory income earned (excluding state contributions) against total benefits paid, excluding the financing of health recurrent services.

Remedial action does not need to be as extensive as previously assumed

“So clearly in a scenario where the system must provide individual pensions equal to two-thirds of their salaries as well as to provide other benefits, the system will run deficits – and relatively large deficits – with the revenues in the future able to cover only 27 per cent of expenditures compared to 92 per cent today.”

A number of factors have changed since then. Apart from the reform of state pensions, including the gradual increase in retirement age, there have been changes in the real GDP, inflation rate, labour force participation (particularly that of women) and the input from migrant workers. The unemployment rate and labour productivity are also taken into account.

Demographic assumptions were also updated, such as the population and net migration flows, and the fertility and mortality rates.

The so-called PROST model used by the World Bank also inputs data on the beneficiaries and contributors, as well as the parameters of the current pension system now and over the modelling period.

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