The Prime Minister yesterday dismissed Opposition calls for the introduction of second pillar pensions yet expressed optimism that the pensions’ sustainability issue could still be addressed through a bi-partisan approach.

He also reiterated his objection to again raising the retirement age, saying the government’s approach to this issue hinged on a greater work participation rate.

Joseph Muscat was addressing a conference organised by the Institute of Financial Services in collaboration with Times of Malta at the Hilton in Paceville.

Reacting to an earlier call made by Opposition deputy leader Mario de Marco, the Prime Minister said the country was not ready for the second pillar pension. This model would entail workers and employers contributing an additional sum into a special pension fund.

Pensioners are nowadays facing poverty

Such a measure would not be affordable for thousands of families or for the private sector, Dr Muscat argued. However, the status quo was not an option, he said, as the present social security system was becoming “irrelevant”.

“A cleaner with three part-time jobs would end up in poverty once she retires as the present system takes into consideration one source of income for the contributory pension,” he warned.

In this context, he criticised the 2006 pensions reform which paved the way for the gradual increase of the retirement age to 65 by 2017.

“It looked at future retirees and not at the present problem, as pensioners are nowadays facing poverty.” The Labour government, he said, was addressing the sustainability of pensions by raising the female participation rate, creating opportunities for an ageing workforce and luring people above retirement age to remain in employment.

While acknowledging that more could be done to encourage low-income earners to start saving through the recently introduced voluntary pensions, he remarked that “Rome was not built in a day”.

Saving the day

One of the possible solutions floated during the conference was to encourage workers to start putting aside one per cent of their salary from an early stage of their career.

The proposal was put forward by MSV Life CEO David Curmi, who called for the creation of a voluntary auto enrolment workplace saving scheme. This would ensure that by default one per cent of gross salary before tax would be deducted and go to a special fund. Workers could still opt out if they did not wish to contribute.

He said that such a system would lead to less reliance on the State, encourage long-term saving and be a good basis for second pillar pensions.

The government could do its part by providing fiscal incentives, Mr Curmi said.

Eurostat sounds pensions warning

A Eurostat study on the demographic trends in Europe warns that by 2060, for every two Maltese pensioners there will be fewer than three (2.8) full-time workers to sustain the welfare system.

To blame for this would be a drop in the fertility rate to 1.68, increased life expectancy by about 6.3 years and a soaring population expected to reach 476,000.

As a result, the sustainability of pensions is set to come under further strain.

Godwin Mifsud, structural economic research director within the Finance Ministry, said that contrary to popular perception, pension expenditure in Malta was still below EU average, at least until 2012. Nevertheless, spending on pensions is exceeding income by some 2.2 per cent of GDP, thus creating a ‘welfare gap’.

Experts have warned that in the absence of any corrective measures, this ever-increasing hole in public finances will put the future of State pensions in serious jeopardy.

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