The recent survey of The Sunday Times showed that the Maltese public is dead against the reforms that have been proposed by the government regarding the pensions system.

A majority claimed that there is no need to reform our pensions system as yet. This is contrary to what is being claimed by the government, namely that the pension reform is an issue that needs to be tackled urgently.

Up to a certain extent, the point as to whether Malta needs to overhaul its pensions system now or in 10 or in 20 years' time, has tended to cloud the whole issue, and as such the merits of the reform itself have not been discussed thoroughly.

The pensions issue cuts across the economic, political and social debate. The political aspects of the debate centre on the amount of resources that government should devote to senior citizens. From a political perspective, should Tom, Dick or Harry be encouraged to look after themselves, even after they have stopped working, or should they be taken care of by the state?

From a social perspective, one needs to ask the extent to which one wishes to provide a social security safety net. The economic issue has to do not only with the allocation of government expenditure, but also with the changing structure of the workforce.

It is this latter aspect that I feel is most critical when assessing the pension reform from an economic perspective. That in Malta we have an aging population is a well known fact. The number of people that reached retirement age last year was the greatest ever and was even greater than the number of entrants into the labour force. This is causing a change in the structure and the size of our labour force. If we do nothing, the labour force is bound to shrink and cannot produce enough wealth to support the non-economically active population. In turn this would necessitate either further taxation or the reduction of the government's expenditure.

Thus irrespective of whether the country can afford the current pensions system in future, the economy can certainly not afford to have a shrinkage of its labour force. The implications of a shrinkage of the labour force can be disastrous for the economy.

This would mean a lower gross domestic product because we end up producing less, the possibility of bottlenecks in skills availability with a resulting increase in labour costs, a probable loss of competitiveness for businesses operating here. If anything, our labour supply needs to increase such that the business sector can find the skills it requires to thrive.

This line of reasoning explains the need to raise the retirement age as part of the pension reform. In fact we could leave the pensions system as it is today, and still need to raise the retirement age. Some have claimed that raising the retirement age could increase the costs for business.

I do not understand this claim and I think that it needs to be substantiated. In any case, the current developments in the Maltese economy coupled with an increased life expectancy would tend to militate in favour of raising the retirement age. We need to keep in mind that when the retirement age was pegged at 61, most persons used to start working at age 16, and life expectancy was a good five years less than it is today. Moreover, most people used to work in the primary and secondary sector, rather than the tertiary sector. What has changed in a very dramatic way over the last 10 years is the shift in economic activity away from the primary and secondary sector to the tertiary sector.

It may be arguable whether employees in the tertiary sector can afford to work longer, however facts tend to show that persons that have worked in the tertiary sector have tended to stay on working beyond retirement age to a greater extent than persons that have worked in the primary and secondary sectors. If persons are showing a tendency to work beyond retirement age, then we should raise the retirement age.

Another dramatic change is that with developments in post-secondary education, persons are joining the labour force later. A person starting work at age 16 and retiring at age 61 would have worked for 45 years.

If we stick to the 45-year benchmark, then a person starting work at age 21 should work till age 65.

Issues like parental leave and breaks in one's working life for various reasons, plus an increased life expectancy, would actually necessitate that an individual works beyond age 65 to earn enough money that would guarantee his or her standard of living, once that person retires.

Thus pension reform debate should go beyond the sustainability or otherwise of the current pensions system.

It needs to look at what is happening in the labour market, as we need to make sure that we do not reduce our potential to generate wealth, that eventually sustains our pensions system.