After decades of abandon as a policy issue, pension reform has been on the national agenda since 2004. Since then a significant body of work was carried out by different reform task forces established by governments in 2004, 2010, and 2013.
This corpus of work did not necessarily translate into action. For example, despite the 2004 and 2010 reviews’ strong proposals for the introduction of a voluntary savings pension instrument action only followed a change in administration in 2013, with the first products reaching the market in 2015.
From the start of the pension reform journey, the reform task forces identified that the majority of Maltese persons did not know how the pension system worked, believed that the social security pension would allow them to enjoy the same quality of life enjoyed in pre-retirement, that they did not plan for retirement, etc.
The reform task forces emphasised that no reform of the pensions system’s parameters alone would result in meaningful change unless this was complemented by the inculcation of a culture of self-responsibility for retirement – achieved through instilling and understanding the importance of saving for retirement. Yet, this ‘behaviour’ reform aspect of what is a technically complex policy matter failed to find political support – and traction was never secured.
The 2013 Pension Strategy Group in its June 2015 report to the government agreed with recommendations presented by task forces on the national importance of instilling a culture of financial capability within the Maltese society. The government accepted this recommendation and tasked the Group, together with other key government and private stakeholders, to draw up such a strategy. The strategy was presented to government in late 2015, and in 2016 it was placed in the public domain and a national consultation and discussion process launched.
This process is now completed. A strategy for retirement and financial capability will be launched on January 25. An important point made during the consultation process was that strategy should give greater emphasis to the issue of vulnerable groups and retirement/financial management. Indeed, the strategy is now repositioned in this regard.
The strategy identifies six knowledge and skills domains for a Maltese person to be financially capable: managing debt; managing a daily budget; building a safety net; planning for the future; understanding the basic principles of the financial landscape to invest wisely; and understanding their basic consumer rights.
These knowledge and skills domains do not necessarily apply uniformly across Maltese society: managing debt and a daily budget are of particular importance to vulnerable groups – while planning for the future, investing wisely, and knowing one’s rights is, on the other hand, more likely to be of importance to middle-income earners.
The strategy recognises that much has been done by different stakeholders in addressing matters relating to financial capability. One important milestone, for example, is the new curriculum framework which introduced financial literacy in the junior secondary cycle of education. Nevertheless, there is little coordination among the stakeholders and many gaps exist that need to be addressed. In this regard the strategy proposes a series of actions under the following strategic prongs:
Use of educational pathways to promulgate knowledge on retirement income and financial capacity.
Provision of trusted and independent knowledge, education, and information to build and reinforce retirement and financial capability across the Maltese Society.
Malta has experienced its share of good strategy design which fails because implementation is not rooted within the conceptual framework. The strategy recognises this and seeks to address it. It recommends – and government has accepted – the setting up of a private/government body mandated to coordinate the implementation of the strategy. This body will not supplant the excellent work that is being carried out by different private and government stakeholders with regard to financial capability.
The implementation body, rather, will seek to secure greater networking and synergy building across the different stakeholders, and together with stakeholders initiate activity to address gaps identified by the strategy.
Inculcating and reinforcing financial capability across the Maltese society is not only a government responsibility. It is a societal responsibility. The strategy will not be realised without the combined efforts of individuals, families, local communities, financial services providers, employers, labour organisations, businesses, NGOs, etc.
Indeed, all of the key actors are likely to benefit as a result of a strategy on retirement and financial capability that is underpinned by trust. If successful, people will be better informed of what their retirement income will constitute vis-à-vis their expectations, of improved decision-making on savings and investments, of reduced regulatory action and loss of trust in financial service providers due to mis-selling, fraud, and abuse.
Additionally, such an approach is more likely to result in a collaborative partnership that allows confidence to build as the parties work together, explore emerging trends, generate new ideas, and achieve better understanding of the challenges and issues faced by one another.
David Spiteri Gingell is the chair of the Retirement and Financial Capability Group.