Unpopular measures like raising the retirement age, introducing second pillar pensions or increasing social security contributions were not necessary for the long-term sustainability of pensions, a strategy group has concluded.

Instead, the government is being urged to introduce a guaranteed minimum pension to fight poverty among the elderly and roll out incentives to encourage workers to postpone exiting the labour market.

Proposals have also been made to compensate parents who have taken a break from their career to raise their children by crediting them with additional years of employment for the computation of their pension.

A similar arrangement is being recommended for employees who ventured in the labour market at a later stage to follow tertiary and vocational education.

The report was unveiled yesterday at a half-day conference in which a strategy group presented its recommendations to ensure the long-term sustainability of pensions until 2060. The group was tasked by the government to carry out the review in June 2013.

The recommendations contrast with repeated warnings by the EU that the sustainability of Malta’s public finances was at risk in the long-term, notably due to a projected increase in age-related expenditure.

In its 2015 country-specific recommendations, Brussels warned that “legislated increase in the statutory retirement age is being introduced at a very slow pace and there is no specific link between the statutory retirement age and life expectancy”.

Commenting on the recommendations, Finance Minister Edward Scicluna said demographic projections made 10 years ago proved to be inaccurate. While acknowledging that pensions’ sustainability was a huge challenge, he said the outlook was less negative than had been predicted when the 2007 pensions reform had been rolled out.

Prof. Scicluna said that healthy economic growth, coupled with a sharp increase in female participation had contributed to this improvement.

“Nevertheless, there is never a good time to introduce unpopular measures,” he said.

He added that the government would only consider raising the retirement age if worker participation exceeded 70 per cent.

He also argued against raising the social security contribution, which, at present, is the lowest in the EU, saying this would undermine Malta’s competitive edge.

The report makes no reference to the introduction of second pillar pensions – a form of insurance paid by the employer and employee. The government has repeatedly insisted that, for the time being, Malta is not ready for such a measure, saying the vast majority of workers and employers could not afford it.

UĦM airs second pillar concerns

The social partners welcomed the recommendations yesterday but had divergent opinions on the issue of second pillar pensions.

Union Ħaddiema Magħqudin general secretary Josef Vella said that, once again, the issue of second pillar pensions had been skirted and no proposals had been made. He said Maltese workers should not be denied the right to have such form of pension, which was widely available in other EU countries.

Representatives of other constituted bodies said that Malta was not yet ready for this measure and argued that these should only be considered when all other options had been extinguished.

Main recommendations

• The retirement age will remain 65 years.

• No increase in social security contributions beyond the 10 per cent rate.

• No obligatory second pillar pensions.

• The introduction of a minimum guaranteed pension as from next year for those aged 76 and over. This will equate to a weekly increase of €21 and some 18,000 people will benefit from it. The measure will be gradually extended to include all those aged 65 and older by 2027.

• Those aged between 61 and 65 years who opt to remain in employment even after being eligible to receive maximum pension, will get up to a 12 per cent increase in pension if they keep working until 65 years and more if they remain in employment beyond that date.

• People who earn their living from more than one part-time job will be able to boost their pension, as they will have the opportunity to pay contributions from more than one job.

• The surviving widow or widower will receive the deceased spouse’s full pension, as opposed to five-sixths as at present.

• The age pension will be established in proportion to the minimum wage and will increase.

• The government will discuss ways with the social partners on how to lift a prohibition on those aged 65 years and over who, at present, cannot make further contributions to their pension.

• A study will be commissioned on how to regulate the so-called equity release market through which old people barter their own property in exchange for accommodation in an old people’s home.

• More fiscal incentives for private pensions and education campaigns to raise awareness on taking informed decisions on long-term financial commitments.

• Pension sustainability will be reviewed every five years.

Proposals for those born before 1962

• Parents who stopped working to raise their children will get three years’ credit in contribution for their first child, two years for the second and one year for the third.

• Those venturing in the labour market at a later stage to complete their education will get up to six months’ credit for each year of their studies.

• Contributions made before reaching 18 years shall be included for pension computation purposes.

• Pensions will be adjusted with a mechanism based 50 per cent on wage increases and 50 per cent on inflation, provided this is not lower than the cost-of-living allowance.

• The period on which the pensionable income is calculated will be extended to 15 years from 13 for those born between 1952 and 1961.

Proposals for those born after 1962

• Parents who stopped working to raise their children will get five years’ credit in contribution for their first child, four years for the second and three years for the third.

• The minimum period to qualify for a pension will increase to 11 from 10 years for those born between 1966 and 1967 and to 12 years for those born from 1968.

• Those venturing in the labour market at a later stage to complete their education will get up to 12 months credit for each year of their studies.

• Contributions to be eligible for maximum pension will increase from 40 to 41 years for those born from 1965.

• Those born after 1973 intending to retire before the statutory age will need to have 35 years of contributions.