The European Commission’s Green Paper on adequate and sustainable pensions, published last week, is an opportunity for all European and Maltese stakeholders to confirm their commitment to a comprehensive reform of national pension systems.
The impact of our national pension system on public finances is likely to come under increasing scrutiny: data contained in the Commission Green Paper on pension reform taken from the 2009 Ageing Report shows that Malta will face the seventh largest increase in pension spending in the European Union in the coming years.
The proposals contained in the Commission’s Green Paper pave the way for co-ordinated action among member states on certain aspects of pension reform. Although the Commission has no authority to legislate on the matter, the proposals contained in the Green Paper, aimed at ensuring the sustainability and adequacy of pension systems, should spur further debate on the issue.
The Green Paper reflects the Commission’s intention to enhance regulation of private pension schemes. While changes in public pension systems remain within the remit of member states, the creation of a single market in private pensions is seen as desirable. Worth mentioning are the Commission’s proposals for a review of the European laws regulating the activities of private pension schemes; legislative intervention aimed at securing consistent regulation and supervision of funded pension schemes; and improvements to the solvency regime of private pension schemes.
The Commission’s suggestions are based on the EU2020 targets aimed at bolstering Europe’s competitiveness, as well as recent legislative and policy trends in pension reform experienced in other member states, where greater emphasis is being placed on a mixed approach between public pensions, mandatory private pensions, and private savings.
The importance of the social dimension to the pension debate is of paramount consideration in the reform proposals.
Achieving a sustainable balance between time spent in work and in retirement is one of the Commission’s objectives.
This includes an increase in retirement age and an adaptation of the social and financial incentives to work. European legislation providing for the protection of workers in case of insolvency of pension sponsoring employers is also to be enhanced.
The proposals should be seen as a continuation of our national debate on the future direction of our pension system generally, which has been high on the national policy agenda over the last decade or so. Work of the Pensions Working Group which was established in 1999 culminated in a White Paper entitled ‘Pensions: Adequate and Sustainable’ in 2004. This was then followed by 66 suggestions made in the Working Group’s final report following extensive consultations with the social partners. In its final report outlining the final suggestions, the Working Group noted the unanimous opinion among stakeholders that a ‘no reform’ option was not viable.
Among the final suggestions of the Working Group, one finds proposals for changes to the two-thirds pension, including a minimum pension guarantee, and an increase to the retirement age. Proposals for the establishment of a second pillar pension scheme and a third pillar pension scheme were also made. The introduction of a second pillar pension scheme would provide for the contribution of individuals to private pension schemes regulated by the MFSA under the auspices of special laws. The Working Group suggested that the introduction of the second pillar would be phased in through the introduction of occupational pension schemes in order to build trust and confidence in the system.
The proposals contained in the EU Green Paper parallel many of the suggestions made by the National Pensions Working Group and the Commission’s suggestion for a review of EU laws regulating private pension schemes should result in a more efficient multi-pillar pension structure throughout the EU, including Malta. The introduction of a second and third pillar locally is expected imminently.
Minister of Education, Employment and Family Dolores Cristina’s declaration welcoming the publication and encouraging all stakeholders to participate in the Commission’s consultation is a positive sign confirming the administration’s determination to achieve this goal.
We, stakeholders, should take our cue from the political establishment’s willingness to engage in dialogue and contribute ideas during the consultation process on a European level and the national review process currently underway. Participation should be accompanied by a commitment to comprehensive change.
Pension reform is now unavoidable and substantial reform of the system is needed if we are to secure the health of our welfare state.
mbianchi@jmganado.com
Additional research by Matthew Mizzi, a law student training with Ganado & Associates, Advocates.
Dr Bianchi is partner of the insurance and pensions team at Ganado & Associates, Advocates.