The pension reform of 2007 did not affect persons who were aged 55 and over as at January 1, 2007. On the other hand, transitional measures were introduced for those between 46 and 54 years old.

The brunt of the reform was directed towards those people who were 45 years old or younger as at January 1, 2007 - the so-called ‘switchers’.

A new social contract was drawn up for such ‘future pensioners’, one far more onerous than that enjoyed by present pensioners, then and now. The new social contract included increasing the retirement age from 61 to 65 years, the accumulation period rising from 30 to 40 years and changing the pension calculation from best three consecutive years in the last 10 years to the best 10 years over a 40-year period.

The concern existed that this onerous pension framework may negatively affect different cohorts of people born in 1962 and after, that is, women, as a result of interruptions in the contributory history, rendering them unable to meet the more exacting criteria. To prevent this, the reforms sought to protect switchers from at-risk-of-poverty (ARP) by guaranteeing a minimum decent standard of living through a guaranteed national minimum pension (GNMP) benchmarked to a 60 per cent median income.

Pensioners at the time and now emphasised that if the government truly sought to address ARP among the elderly it had to extend the GNMP to all pensioners, including the present ones.

The Pensions Strategy Group, unlike previous groups, had one important innovation in its terms of reference: it was tasked to assess the state of play of current pensioners. One important aspect included presentation of recommendations regarding “the initiation of a process over a period of years that gradually results in a national minimum pension that is equivalent to 60 per cent of the national average income” (electoral manifesto proposal no. 39).

The PSG assessed options on how the right to the GNMP could be extended to persons born before 1962, including options presented by pension associations. Undoubtedly, from a poverty policy perspective, the most effective intervention is that of introducing the GNMP for pensioners born before 1962 as from January 1, 2016. This would lift all such pensioners above the ARP threshold.

The implementation of such a measure will significantly increase public expenditure. Though the PSG is aware of the importance of addressing ARP among pensioners, the cost of a big bang implementation would significantly strain the sustainability of the pension system.

The PSG recommends that the incremental implementation of the GNMP vis-a-vis a big bang solution is a far more prudent approach with regard to both the sustainability of the pension system as well as the application of social justice.

The guaranteed national minimum pension is estimated to reduce the at-risk-of-poverty by 6.4 per cent to eight per cent

The PSG assessed different options of how the GNMP could be incrementally introduced. Its preference, and recommendation, is shown in the table, through which, it hopes, its recommendation is better understood.

The group recommends that the initial target base for 2016 implementation are pensioners aged 76 and over and, every year, the coverage is widened as shown in the table. This approach targets the ‘old old’ among pensioners and those who have been longer drawing their pension at the current lower national minimum pension. The group identified these pensioners for early implementation also given that they face higher exposure to material deprivation, social exclusion, resulting in institutionalisation rather than continued integration within the community, higher risk of poverty to widows given increased longevity and the subsequent risk of savings erosion and so on.

The proportion of those aged 76 and over who are ARP stands at 14.4 per cent The EU measurements exclude pensioners in residential homes. As proposed, the GNMP is estimated to reduce the ARP by 6.4 per cent to eight per cent. Pensioner poverty is estimated to fall from 14.9 per cent to 12.5 per cent and the overall poverty rate from 15.7 per cent to 15.4 per cent.

Computations based on Europop demographics show that, in 2016, 30 per cent of pensioners will be eligible to access the GNMP. In four years, more than half of the pension age population will access this right.

On average, therefore, it will take four years for half of the pensioner population to be eligible for this right and not 11 years as some lobbies suggest. The highest waiting period as proposed is in fact seven years, as shown in the table.

Above all, one must keep in mind that, under current rules, none of these pensioners is entitled to the higher GNMP except those born in 1962 or after, who are due to retire in 2027.

Mark Musù is chairman of the Pensions Strategy Group.