It is unfortunate that the Alliance of Pensioners’ Associations , which should protect the interests of all pensioners, focused its assessment of the proposed pensions strategy on one issue: service pensions. In so doing, the alliance is misleading its members and the readers of the Times of Malta (July 6).

The statements by the alliance that “the PSG embarked on a mission to justify the unjust and discriminatory measures that were put in place against persons entitled to a service pension” and that “the PSG preferred to start a campaign against those entitled to a service pension”, as alliance president Carmel Mallia put it, are unwarranted.

They are also disrespectful, if not to me as chairman, to the members of the PSG, who are experts in their respective fields, who acted in good faith and who worked free from any political intervention, something the government emphasised on many occasions.

The mission of the group is guided by: (a) the importance of establishing a clear definition of the objectives of the pension system, which is underpinned by a strong active employment policy; (b) the notion that the State pension, while serving as a solid foundation, would not be the only source of retirement income; and (c) securing a fair balance between contributions and benefits across generations.

This clearly shows that the proposed strategy had to be first and foremost forward-looking for future pensioners, a central tenet of any strategy for pension reform. There are a number of interesting recommendations for future pensioners. Importantly, raising the retirement age or increasing the contribution rates are not being recommended.

The focus of this contribution, however, is with regard to current pensioners and not those of the future.

The PSG is the first reform group that incorporated within its terms of reference a review of the state of play of such pensioners. The PSG established an ad hoc sub-committee in this regard, which allowed it to be cognisant and sensitive to the proposals presented by the alliance and other organisations.

The group took on board a number of principles for the proposed reform and shaped these into implementable recommendations that will positively impact current pensioners if endorsed. These recommendations include: (i) the introduction for all pensioners (over a period of time) of the guaranteed national minimum pension, pegged to at-risk-of-poverty levels; (ii) awarding full spouse’s pension (rather than the current 5/6) to widows/ers entitled to a retirement pension themselves; (iii) contributions paid under age for persons born before 1962 to be considered valid for pension purposes; and (iv) a new indexation system to replace what the PSG believes to be a socially unjust post-retirement adjustment system.

The PSG fails to understand why these pivotal recommendations are not welcomed by the alliance given their pervasive impact with regard to alleviating poverty among current pensioners. Although one can debate and improve such recommendations, for the alliance to ignore them and focus solely on the service pension issue is regrettable.

Given the alliance’s assertions on service pensions, I feel in duty bound to explain the apolitical group’s rationale behind the proposals it presented.

The PSG analysed the situation of service pensioners who are primarily receiving what they were entitled to under their pre-1979 social contract although successive governments introduced measures that resulted in a good number of such pensioners receiving more than what they enjoyed pre-1979.

It is important that the situation of British Service pensioners and that of Treasury service pensioners would be treated separately.

To put this into perspective, I compare in the table below Treasury service pensioners (who enjoy the pre-1979 privilege of a service pension without paying any additional contributions for it) to non-service pensioners (that is, not entitled to a service pension) occupying the same grade within the public service.

The table above factually shows the better deal that Treasury service pensioners are getting when compared to non-service pensioners.

It also shows that a service pensioner who today retires on Scale 18 (lowest Scale is 20) is, apart from the lump-sum gratuity, receiving pension income similar to that of non-service pensioners who retired at Scale 11 or above (as high as Scale 1 or even higher considering the private sector). This is also due to the fact that while social security pensions (for sustainability purposes) are capped, Treasury service pensions are not.

True, the above reflects the pension award immediately on retirement and that, year after year, as Treasury service pensioners rightly claim, this service pension value is eroded because no post-retirement adjustments are effected. This erosion is, however, partly mitigated by the fact that their social security pension is adjusted every year by cost-of-living adjustments (which the group seeks to improve through the introduction of a new indexation system). Nonetheless, they would continue to enjoy a better deal than their peer non-service pensioners year after year and, at worst, from the perspective of Treasury service pensioners in some cases the amount of pension/s both respective peers receive could eventually, after several years, converge and remain equal till death.

The primary priority for reform must be directed towards those pensioners at greater risk of poverty

The alliance calls this better deal “baseless and out of context”. The group begs to differ.

The alliance, and other service pensioner associations, have long advocated for social security pensions to be paid without deductions. Within the context of the above-mentioned real examples, this would mean that (apart from gratuity sums paid) the service pensioner who retires today at:

Scale 18 with a salary of €12,007 would get a total of €14,000 in pension income (117 per cent of his salary).

Scale 11 with a salary of €18,810 would get a total of €21,300 in pensions (113 per cent of his salary). Scale 5 with a salary of €28,420 would get a total of €26,100 in pensions (92 per cent of his salary).

Would this be socially equitable and just? The group certainly believes that it would not be so.

British Service pensioners, part of whom also did not contribute additionally for their service pension, benefitted substantially, though not only them, from measures introduced by successive governments. Through such measures, among others, for social security purposes, what is taken into account is not the current amount of service pension in payment but the original amount on first award of pension (abated by a further €1,666 as at 2015).

British Service pensioners cannot claim that their pension value is being eroded because their service pension is adjusted every year (unlike Treasury pensions). Additionally, all yearly adjustments to their service pension since its first award are not taken into account, meaning they may also benefit from a better social security pension as well.

Many of such pensioners already enjoy their full social security pension on top of their yearly adjusted service pension. One cannot but ask whether this is not a better deal than that of non-service pensioners?

This perspective vis-à-vis service pensioners compares far positively with the reality that there are thousands of non-service pensioners, mostly elderly couples, who have to make ends meet with one pension of less than €7,000 per annum (less than €600 per month).

The PSG unequivocally is of the considered opinion that the primary priority for reform with regard to current pensioners must be directed towards those pensioners who are at greater risk of poverty.

Not only. The group has sought to present a balanced and realisable reform framework to improve the adequacy situation of all current and future pensioners in a socially just and holistic manner, bearing in mind the long-term sustainability of our pension system.

In this context, it is with great satisfaction that the group notes the general broad appreciation of the proposed reform by all social partners.

Pension entitlement

  Non-service pensioner (NSP) (public officer or private sector employee with such or higher salary) Service pensioner
    Lump-sum gratuity Uncapped service pension per annum SSP ranging from
Public service Scale 5 or above: maximum €28,420 in 2015 Maximum capped social security pension (SSP) €11,900 per annum €59,200 €14,200 €4,650 to €5,540
Total from €18,850 to €19,740 per annum. 66% more than a NSP excluding gratuity
Public service Scale 11: maximum €18,810 in 2015 Maximum capped SSP €11,900 per annum € 39,200 €9,400 €4,650 to €5,540
Total from €14,050 to €14,940 per annum. 25% more than a NSP excluding gratuity
Public service Scale 18: maximum €12,007 in 2015 SSP circa €8,000 per annum €26,000 €6,000 €4,650 to €5,540
Total from €10,650 to €11,540 per annum. 44% more than a NSP excluding gratuity

Mark Musù is chairman of the Pensions Strategy Group.

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