The Pensions Stretegy Group has recommended to the government that it should incentivise late exits from the labour market, while retaining the current retirement age.

In a report published today for consultation, it recommends that  a person will receive the following top-up to his or her pension in the event he or she remains in employment between 62 and 65 years of age without claiming a pension:

62 years of age: 2% top up to the pension value;

63 years of age: 2% top up;

64 years of age: 4% top up;

65 years of age: 4% top up to the pension value.

It also says that to give a better incentive to those working, the number of contributions that need to be paid (that is, not credited) for one to retire earlier than actual retirement age should be established to be at least 7/8s (around 35 years) of the total required (Invalidity Pension credits would be considered as paid for this purpose).

This condition shall apply only for those born in 1962 or after and introduced gradually as follows:

Those born from 1962 to 1968 – no change (to keep with principle of informing of changes 15 years in advance)

Those born in 1969 – 31 years out of 41 years need to be paid

Those born in 1970 – 32 years need to be paid

Those born in 1971 – 33 years need to be paid

Those born in 1972 – 34 years need to be paid

 Those born in 1973 or after – 35 years need to be paid.  

MINIMUM GUARANTEED PENSION

The Group also recommended that the Guaranteed National Minimum Pension should be set at poverty threshold  as at 1st January 2016 .

Between 2017 and 2026, the Guaranteed National Minimum Pension should increase by the full COLA for that year plus any difference between the full COLA and the income level resulting from the application of an indexation of 50% wages and 50% inflation. Thereafter. the Guaranteed National Minimum Pension would increase cumulatively on the basis of the full COLA plus any difference between the full COLA for that year and the change in the maximum pension.

PENSION REVISIONS

Revisions of pensions should be made fairer with revisions every year  based 50% on increases in salaries and 50% on inflation.

Those born between 1952 and 1961 would have their pensionable income calculated on the basis of the last 15 years before retirement, if that is better for them.

CONTRIBUTIONS FOR MUMS, STUDENTS

With regard to those born after 1962, the number of credited contributions would be increased to those who did not pay contributions because they stopped work to care for their children. There will be five years contributions for the first child, four for the second and three for the third, increasing further if there are disabilities.

For those born between 1966 an 1967 the minimum period to qualify for a pension is rising to 11 years from 10, while for those born after 1968 it is rising to 12 years.

Those who started working late because of full time study would get more credited contributions. For those at qualifications level five and six, the contributions will be three months for every year of study, rising to six months for every year of study for level seven and 12 months for every year on those at MQF eight.

While the retirement age is not being moved, those born from 1965 will need to have paid contributions for 41 years to retire (it is currently 40 years).

Unions' reaction positive; UHM disappointed on second pillar pensions

GWU's Victor Carachi said the union's initial feedback was positive, especially on the minimum guaranteed pension.

Mario Spiteri from Chamber of Commerce also welcomed the proposals saying these would not shock the economy

Economist John Cassar White said there needed to be a cultural change among employers and workers regarding dependency on the state.

Joe Farrugia, Malta Employers Association director general,  said described the reform as "very comprehensive" building on the 2007 reform. He said it was important to draw a long term plan up to 2060 and called for a greater involvement of youths as these would be the ones affected.

UHM secretary general Josef Vella welcomed plans for periodic reviews every five years, and hailed the proposal which would allow part-time workers with more than one job to boost their pension. However, he expressed disappointment that, once again, no commitments wwere being made on second pillar pensions. Mr Vella said Maltese workers should not be denied the right to have a second pillar pension.

This prompted a reaction from GWU President Victor Carachi who said second pillar pensions would place too much burdens on employers and workers. On his part MEA director general said one needed to first consolidate first pillar pensions.

Full report at http://mfss.gov.mt/en/public-consultations/pensions/Documents/Pensions%20Report.pdf