Had Charles Dickens been still alive today, he would certainly have included the plight of pensioners in an updated version of his novel Hard Times. The OECD has just issued its annual report on the pensions systems of various countries. There is little to be cheerful about in this document.
When I last wrote about the need of urgent action to accelerate our pensions reforms, I was contacted by various retired persons who confirmed that they were indeed living on the verge of poverty as a result of the inadequacy of the state pension combined with the erosion of their savings through the financial markets collapse in the last two years.
While young people in their 30s and 40s have enough chance to plan ahead and repair the damage done to their savings by collapsing financial markets, those already in retirement, or who are about to retire, face really daunting prospects. For most people the national pension amounts to about a third of their final wage or salary.
As the OECD report says, with governments facing the challenges of a prolonged economic slowdown with rising unemployment "there is little room for more generous public pensions". This, combined with the fact that the savings pot of most pensioners has been eroded by about 23 per cent in the last year alone, clearly explains why many thousands of our pensioners are facing retirement poverty.
However pressing other economic issues are in this recessionary scenario, the government needs to bring the issue of pensions reforms back on the national agenda. Political unpopularity is no reason to stop the momentum of reforms started a few years ago, but that has practically stalled in the last year.
Restricting early retirement schemes is one measure that can be introduced almost immediately. We still have employers pushing their experienced employees out of the exit door on the pretext that this will save them costs as they replace them with lower-paid employees. In fact, the government should go one step further and encourage public service employees to voluntarily continue working beyond the current retirement age. If we do not act now, we will have to make more difficult choices in the near future. The Irish government, for instance, is facing one of the worst pensions crises in any developed country. It now has to resort to cuts in pay of Irish public officials to alleviate the problem. The EU 2009 Aging Report has some alarming warnings about the sustainability of Malta's pensions system. It noted that "Malta has only made limited progress in reforming its pensions system". And yet, the political forces in Malta seem to be ignoring the implications of what is said in this report.
The EU report quotes some bleak forecasts. GDP growth for Malta for the period 2007 to 2050 is forecast to be 1.4 per cent per annum against the EU average of 1.8 per cent because of what the report calls "less favourable demographic prospects". In the same period the working population in Malta is estimated to go down from the current 70 per cent to 55 per cent in 2060.
We either face reality and take action to reform our pensions system now or else condemn thousands of present and future pensioners to a life of poverty and deprivation. The 2006 reforms hardly tackled the issue of the hardships faced by those who are already in retirement or about to retire in the next five years.
This time around this sector of our society should not be ignored. By helping people who can do nothing to help themselves at this stage of their lives, the government will not only be practising social justice, but compensating these people for being involuntarily misled by past administrations into thinking that on retirement they would enjoy a pension equivalent to two thirds of their final wage. Of course, we all know how this promise was frustrated by enforcing an immovable ceiling on the maximum pension that one could claim during retirement.
For the younger generations, we need to promote again the culture of saving and not consuming more than what one can afford. The psychological effects of the current prolonged recession will help us all to appreciate the value of building robust financial shock absorbers to protect us from poverty in hard times.
johncassarwhite@yahoo.com