In what could be described as a significant shift in government’s pension policy, Finance Minister Edward Scicluna announced a plan to introduce voluntary second-pillar pensions yesterday.
“The government will soon announce a task force whose remit will be to consider the introduction of voluntary second-pillar pensions,” Prof. Scicluna said.
“There may be fiscal incentives whereby employers and unions would be encouraged to consider such option if there is mutual agreement,” he added.
The Finance Minister made the announcement during a special joint session of the Malta Council for Economic and Social Development and the Malta EU Action Steering Committee.
At the meeting, Prof. Scicluna presented Malta’s plans to meet the annual country-specific recommendations issued by the European Commission as part of the national reform programme. The plan is set to be approved by Cabinet in the coming weeks, before being presented to the Commission some time next month.
While the existing first-pillar pensions are based on a pay-as-you-go system through which the current workforce finances current pensioners, the second-pillar is a funded pension plan whereby the individual and the employer put aside money throughout the years of employment.
The light is no longer red but orange
To date, the government has rejected calls from the Opposition, the Union Ħaddiema Maqgħudin and economists to introduce mandatory second-pillar pensions, at least for the time being.
Prime Minister Joseph Muscat has repeatedly declared that such a measure would not be considered for now, as thousands of families cannot afford to dedicate another significant part of their income towards a pension fund.
Yesterday’s announcement, however, may indicate that the government has softened its stance on second-pillar pensions.
In his address the Finance Minister spoke about the long-term sustainability of public finances, noting that pensions were an integral part of this challenge.
On a positive note, he said that fears about pensions’ sustainability had slightly abated due to increased female participation rate and a rise in population.
“The light is no longer red but orange,” he remarked. Nevertheless, he said additional measures would be needed to ensure that future generations would have a decent pensions, including voluntary second-pillar schemes.
He also noted that the government’s decision to introduce private (third-pillar) pensions had elicited positive feedback and said further incentives to increase their take-up were being considered.
Touching on the economy, he lauded last year’s “exceptional” 6.3 per cent economic growth but warned that the country should not be carried away with this success.
“The reality is that government’s revenue has not reached some particular benchmark which would permit a bigger distribution of wealth,” Prof. Scicluna warned.