Most people start to think about the way retirement will affect their lifestyle in their mid-50s. Financial advisers believe this is far too late to start building a nest egg that will ensure your quality of life does not deteriorate when you retire.

The government’s plan as detailed by Finance Minister Edward Scicluna to introduce tax incentives for employers, workers and self-employed people who participate in an occupational pension scheme is a positive move. Tax incentives should encourage more people to start thinking about life after retirement at a much earlier stage than is presently the case.

The Malta Association of Retirement Scheme Practitioners argues that at a time when the economy is booming the government could afford to be more generous and at least double the existing incentives to re-energise the initiative. It is a fact that unless a tax incentive aimed at promoting more savings is not attractive enough it may not be successful in persuading younger people with conflicting financial priorities to save for their retirement decades before this happens.

The national pension scheme will never be sufficient to provide the quality of life most people today are accustomed to. Unfortunately, this reality is only evident to those who have already retired and are unable to supplement their earnings through paid work. This is unlikely to change significantly as an ageist mindset may still be making it difficult for older people to keep working voluntarily after reaching the statutory retirement age.

So far, the government, and some of the larger trade unions, are against the introduction of the second pillar compulsory savings scheme. While there is some economic short-term justification for not making saving for retirement compulsory, many argue that when an economy is booming and employers and workers are earning more, it is the right time to introduce obligatory savings.

The Malta Association of Retirement Scheme Practitioners makes a valid observation when it argues that if the government’s attempt to promote savings is more than a token effort, it should do more to promote the benefits of a savings culture in our society.

When an economy is growing, partly because of increasing private consumption, it may be tough for any government to promote long-term savings because this could possibly be seen as an attempt to prevent people from enjoying the instant gratification that comes with spending money on non-essential consumables.

It is early to say whether the planned tax incentives will be enough to change the savings culture. On its own, the move is unlikely to succeed. It needs to be supported by other initiatives like a definite plan when compulsory second pillar savings will be introduced.

The Minister of Finance made a valid comment when he said that because the labour participation rate is still far too low today, it would be unwise to put pressure on the labour market. But when he noted that “when the time comes for second pillar schemes, the time would have come”, it sounded like he just wants to kick the can down the road. He may want his successors to deal with the problem of an inadequate national pension scheme that will affect many pensioners in the decades to come. Token tax incentives may never be enough to change a long-term savings shortfall.