The Strategic Review entitled The Adequacy, Sustainability and Social Solidarity of the Pensions System issued recently by the Pensions Working Group has put the issue of pensions’ reform back on the national political agenda. Will the pensions’ reform pot now reach boiling point after years of simmering gently?
The latest report is very detailed and articulates the arguments backing its recommendations very well. The most important recommendation made in this report is that the second pillar pension scheme should be mandatory and that it should be introduced as early as possible.
I understand that this recommendation represents a significant change of course by the working group that, in November 2009, argued that whilst the importance of addressing structural issues of our pensions system is still a matter of concern, further structural reform should be deferred until such time that the appropriate economic conditions are reached.
If this information is correct, one can only speculate about what motivated this change in emphasis on when the second pillar should be introduced. What is sure is that the European Commission, the IMF and rating agencies are building up pressure on the government to take concrete action to address the irreversible truth of ageing in Malta. They expect that we move from short-term tactical moves to long term-strategic reform of our public services including our pensions and health systems.
The government is caught between a rock and a hard place on this issue. The reforms of 2005 should have gone much further than the increase in the retirement age to 65. We now have to make up for these wasted years. But the real problem is that increasing the cost of labour and decreasing the spending power of families now could unleash recessionary pressures on our economy.
The recent hefty increases in the price of fuel and gas and the prospect of further increases in food and fuel prices in the next few months, combined with the stubbornly high inflation rate that surpasses that of other euro area states, will make further deductions from employees’ take-home pay unsustainable. Similarly, increasing the cost of labour through the introduction of the second pillar will negatively affect our already declining competitiveness and sluggish economic growth.
Few social research surveys are conducted in Malta. So, we have to rely on studies made in other countries (that also have serious pensions’ problems) to get a clear picture of how pensioners are faring. One such report was made by pensions company Scottish Widows. It paints a bleak picture of the life facing the UK’s ageing population.
Half of the 2,000 adults interviewed for this report admitted that they faced a funding gap when they finished work. Ian Naismith, a savings expert at Scottish Widows, said: “Many people underestimate how much money they need when they retire to have the lifestyle they are accustomed to”. In Malta I suspect that the situation is even worse as more pensioners struggle to keep out of the poverty zone.
The Pensions Working Group report does not deal with the issues facing current pensioners and those nearing retirement. Yet, there are some bold decisions that can be taken immediately to start addressing the problems faced by those already in retirement. One of these measures could be that adopted recently by the UK government: the scrapping of the default retirement age for those who want to continue working.
The present system of forced retirement just shows how ageism permeates in our society. Many economists believe that if older people worked for longer there would be more production, more demand for wage-earning individuals and so more jobs for everyone, including young people.
The PWG appeal for political consensus on the proposed reforms is a pious aspiration. But in a country where political polarisation and tribal mindsets are endemic, a government expecting political consensus selectively on unpopular electoral issues amounts to no more than “dreaming the impossible dream”.
As with the sanitation of our public finances, we may soon be forced by external forces to make up for past procrastination by taking drastic measures to put our pensions, health and educational systems on a sound basis. This may happen sooner than many of us think.
jcassarwhite@yahoo.com