People should be told what their pensions would be like in the years ahead in order to raise awareness, the head of a leading insurance company said.
Reuben Zammit, CEO of Global Capital, said that for people to really understand the need to start saving for a pension plan, the government should consider issuing the figures of state pensions in future.
“If today you are living on €12,000 a year and you know you’re going to have a pension of about €7,000, it gets you thinking. If you want to safeguard your present-day lifestyle in the future, then you have to start saving now. And this is part of the campaign the government, as the policymaker, has to work on,” Mr Zammit said.
If you want to safeguard your present-day lifestyle in the future, then you have to start saving now
This, he believes, will “shock” people and “discipline” them to start thinking about their future today.
“It is a fact that pensions are unsustainable and that the government will only be able to provide us with a low bottom pension that might not even allow us to live a decent life. So we need to think today about our pensions,” he said.
His appeal follows that of MSV Life CEO, David Curmi, who recently urged the government to start a national education campaign in financial literacy so people could start saving and planning for their retirement. Maltese people, he said, were spending more and saving less. He suggested the raising of the retirement age.
According to Mr Zammit, however, this is the easy fix being contemplated by many European countries as people are living longer but it is surely not the long-term solution. “How much more can you work after the age of 65, especially now with the stress levels of our lifestyle? Some countries, like Germany, are lowering the retirement age in certain circumstances.”
He said the problem of an ageing population could not be addressed by raising the retirement age but by “strategising”. The incentives promoted by the government were “a starting point” but “nothing wow” and there was much more to be done.
“The government is focusing on the labour participation rate and on economic growth, which are key points, but one cannot just focus on that and keep the pension reform on the back-burner,” he said.
He said the government should assess how knowledgeable people were in financial literacy and then embark on a “years long” campaign, targeting different audiences. “This cannot be a one-month thing.”
Based on such an assessment, the government would then be able to come up with a strategy to promote pension plans, involving all stakeholders.
“The purpose of the pension reform is to promote a culture to save for one’s future,” he said. People are mostly concerned that something will go wrong with the money they invest.
“This is where the government and the regulator have to come into the scene, so people can feel safe when saving their money for the future,” he said.
“The education campaign should help people understand that, when putting money in a savings account or in an investment product through an insurance company, such funds are protected and ring-fenced from the company’s money. Which means it is put in a separate ‘pot’ so that whatever happens to the company in the future their money remains safe,” Mr Zammit said.
The government, he added, had to enforce regulations and spell it out to people so they would have peace of mind that the money invested was an asset for their future.
He pointed out that the government could iron out some disadvantages for insurance companies. People purchasing pension policies from insurance companies incur a stamp duty but this does not apply for a savings account.
The low rate of women in employment is also an issue. “Increasing women’s employment will improve the labour participation rate and stimulate economic growth. The additional disposable income can be a means for families to save more.”
Acknowledging that pension schemes were long-term plans, another incentive, he said, was the possibility to allow flexibility for people to dip into the savings scheme for some important exceptions, such as their children’s education.
He said the government should introduce attractive tax rules when the plans were announced to entice people to save and retain their investment till maturity. This would allow people to plan ahead.
“The truth is: how much more can we procrastinate? We’re already late. We have to act responsibly. That is now in the interest of our future,” Mr Zammit said.