Only a quarter of respondents to a university survey have a retirement plan – and those who do only invest an average of €1,161 annually – €97 per month.

In a dissertation survey covering 1,255 respondents, Ann Marie Mangion found that only 21.9 per cent held specific plans for their retirement and only 21 per cent of those aged 53 or under knew what their applicable state pension would be.

These are some of the facts being used to highlight the need for a financial literacy programme, which will include a more comprehensive study to ascertain the figures on a more representative, nationwide basis.

The proposed study is one of the action points drawn up by the Retirement Income and Financial Literacy Commission under the aegis of the Ministry for the Family and Social Solidarity (MFSS) presented last Tuesday.

The commission was set up on the recommendation of the Pensions Strategy Group (PSG) following public consultation. The commission includes senior representatives from the Malta Financial Services Authority, Finance Malta, the Department of Social Security, and the Department of Quality and Standards in Education.

The first aim of the programme is to increase understanding of the importance of saving for retirement.

“Research overseas shows that not only do individuals display low levels of financial literacy but also that financial illiteracy is linked to lack of financial planning and insufficient resources in retirement – given that, for many persons, financial security in retirement depends on the State pension. What explains this low level of retirement preparedness in developed countries? Why do people do so poorly when it comes to designing and carrying out retirement saving plans?”, the commission asked.

“Research shows that no reform of the pensions system alone results in meaningful change unless this is complemented by the inculcation of a culture of self-responsibility for retirement achieved by instilling an understanding of the importance of saving for retirement.

“Also disconcerting is … a distinct absence of knowledge of how Malta’s pension system works and how this impacts a person’s retirement income – an absence of knowledge that cuts across all strata of society.”

The second pillar of the strategy relates to increasing financial literacy and retirement planning.

“The levels of financial literacy among citizens are a global concern. The causes of the 2008 financial crisis are many. There is, however, little doubt that individuals and financial institutions failed to understand the risks they took when they invested in the financial market.

“Moreover, younger generations face increasing financial risks as they are confronted with more sophisticated financial products than previous generations.

“Furthermore, they are given access to financial services and products at an ever-younger age. These developments do not appear to be matched by an equivalent increase in their financial skills.

“Improving financial literacy is an essential means towards greater economic, social and financial inclusion and an integral part of financial reform to prevent future crises,” the commission added.

The educational programme will span age categories from secondary students to adults, backed by a three-year targeted communication strategy.

“We need to get across the message that retirement planning should include a serious and deliberate analysis of life and financial issues – and certainly not one limited to investment management.

“There is also significant misunderstanding about the amount that can be safely withdrawn from a retirement account.

“People only consider the average investment returns without weighing the downside risk and results if there are poor years. And as the life expectancy of Maltese citizens continues to increase, the risk that pensioners outlive their financial assets is a significant growing challenge,” the commission said.

Many people are over optimistic about expected returns on savings and investments and their ability to manage such savings and investments.

There are shortcomings particularly with regard to educating people on how the State pension works, the expected level of income in retirement from a State pension because of life choices, etc.

The management of savings to secure the highest rate of return is critical – particularly in a state of play where interest rates in banks on saving deposits within the eurozone are low.

If one invests €500 annually between 35 and 65 years of age in a normal savings accounts with an interest rate of 0.1 per cent, the capital of €15,000 would increase to €15,734.80.

On the other hand, if the same capital were invested in a savings account with an annual three per cent interest rate return, the capital would increase to €25,001.34, PSG member David Spiteri Gingell explained.

Public consultation on the strategy is open until March 23. Feedback should be sent to financialeducation.mfss@gov.mt.

Basic facts

97 per cent of households own at least one financial asset, with 83 per cent holding an interest-bearing deposit with a bank.

21.6 per cent own some form of debt security, mainly corporate bonds and government securities. Equity in the Malta Stock Exchange or elsewhere is held by 13.4 per cent of all households, while eight per cent own mutual funds.

24.2 per cent of all households are covered by a life insurance policy or participate in a retirement scheme.

Source: Central Bank of Malta