The Malta Chamber of Commerce, Enterprise and Industry welcomes the publication of the consultation document on the pensions system as it maintains that discussion on the matter should remain high on matters of prime national economic policy.

The pensions system affects the country in terms of the sustainability of public finances and national competitiveness.

In communicating its views on the document, the Chamber said that, while periodic discussion on parametric changes to the pensions system was necessary, it was important that stakeholders approached the welfare gap challenge in a holistic manner because pensions, contributions and entitlement conditions are components of a much wider array of considerations that have a direct bearing on the country’s competitiveness. It was, therefore, crucial to ensure the correct policy prescriptions because these are sensitive and may impinge on national competitiveness. This may, in turn, affect the country’s chances in securing welfare sustainability via economic expansion.

The pensions system must therefore not be addressed in isolation. Other matters, such as the health, care for the elderly, social services and benefits in kind, education and active labour market policies, are intrinsically linked to any changes made to the current system.

In spite of the limited manoeuv­rability, the Chamber is appreciative of the fact that the way forward proposed in the consultation document is generally in line with its policies on the subject. Indeed, the document prescribes no shocks to the economy through further increases in retirement age or in social security contributions for both employer and employee.

That said, the Chamber has always insisted on the need of the third tier system, or voluntary pensions schemes. If effectively implemented, third pillar pensions can, of course, serve to bolster retirement income. The Chamber welcomed their introduction in 2014 as a step in the right direction. The Chamber, however, continues to encourage the government to increase the tax incentives and relevant capping to maximise take-up.

For various reasons, the Chamber believes that mandatory second pillar pensions should not be contemplated at this point in time. One of the reasons behind the Chamber’s position is that the full benefit of third pillar pensions has clearly not yet materialised because they have only recently been introduced and with very limited tax incentives.

Given the potential impact on the country’s cost-competitiveness, the Chamber believes such a mandatory system should not even be contemplated until the authorities exhaust a discussion with stakeholders that leads to the eventual publication of a blueprint that provides the necessary guidance.

The Chamber has proactively suggested the idea of voluntary second pillar schemes defined as supplementary occupational pensions contemplated on a voluntary basis for companies above a pre-agreed employment count.

Clearly, such schemes would need to be well regulated and must guarantee simplicity, transparency, control, confidence and freedom. Certain tax anomalies would need to be ironed out prior to implementation.

Employees of a participating company would be auto-enrolled in the scheme but would be free to opt out. Those who join would pay a percentage of their gross salary through a payroll deduction and would be eligible to any tax incentives that would need to be made available.

Employer contribution would be zero – except for administrative costs – but employers may be allowed to contribute if they so wish and if the right incentives are introduced.

The pensions system must not be addressed in isolation

Such voluntary occupational schemes provide all-round benefits to the State and to participating employers and employees. Participating employees are encouraged to save at a young age and benefit from compounding. To society, such schemes contribute financial education through the workplace, higher saving propensities and less reliance on State systems.

The Chamber welcomes the consultation document recommendation to enhance regulation of equity release schemes that offer pensioners the opportunity to liquidate their immovable property to facilitate care services.

In view of the reality that, in many instances, pensioners are asset rich but cash poor, the Chamber agrees with similar solutions being made available and suggestions to regulate the current informal equity release market are positive.

Besides, due attention must be given to a potential oversupply situation in the property market brought about by extraordinary activity by pensioners seeking to benefit from similar schemes with a resultant negative impact on property prices.

On a different note, the Chamber feels the recommendation to initiate an extensive debate to abolish the mandatory retirement age could lead to serious problems. Though the reason behind the argument is understandable, it is important to note that certain work can be done by those beyond retirement age but jobs that require physical stress are not. Such blanket approaches need to be avoided because the various sectors have immensely diverse needs and a sector-specific discussion would have to take place.

In conclusion, the country must send a clear message in its continued effort to reform the pension system to encourage personal responsibility given the ever-changing socio-economic trends in society such as increased life expectancy, aging population, lower birth rates and increased spending over saving patterns.

Above all, the Chamber continues to insist that pension sustainability be approached holistically by enhancing national competitiveness and promoting economic growth. This approach promises more and higher value added jobs, which is conducive towards rendering the pensions system more sustainable.

Anton Borg is president of the Malta Chamber of Commerce, Enterprise and Industry.

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