In my article entitled ‘The pensions myopia’ (April 30) I argued that the government may be over-optimistic in its projections regarding the sustainability of state pensions in the coming years. I also proposed a national consensus on the matter in the interest of future pensioners.
In this article I would like to discuss the current pensions system and the way it is affecting today’s pensioners. It is no secret that many pensioners are facing hard times in trying to make ends meet.
The 2018 pension adequacy report published by the European Commission provides a very good insight in this regard. In short, this three-yearly report says that: “Malta’s pensions protect against absolute poverty, but they do not constitute an adequate income replacement and as such pensioners are currently facing difficulties in making ends meet.”
It adds that reforms in the Maltese pension system, the most important of which were introduced in 2014, have made the system more sustainable, but adequacy remains a challenge. Whether it is adequately sustainable is another matter.
For those who are not well versed in the pension scheme in question, it is important to note that it is divided in two streams: a contributory scheme based on national insurance contributions during one’s years in employment and a means-tested non-contributory scheme for those not covered by the contributory scheme.
The current pensions system also enables current pensioners to keep working till age 65, to pay national insurance in the process, but not to reap pensionable benefits out of this.
As I pointed out in my previous article, Malta does not have a secondary pillar pension, and to date there is no system of occupational pensions. On the other hand, Malta has a voluntary optional pension scheme (third pillar pensions), and it had something similar before they were suppressed by Mintoff’s government in the 1970s, thus resulting in a discriminatory situation for pensioners today.
The adequacy report notes that investment in private pensions is not affordable “for thousands of workers who earn low wages”.
The Mintoff plan was to discriminate in favour of those entitled to the lowest pensions, but a few years later what actually happened was that the capped two-thirds pension no longer reflected earnings-related pensions, thus resulting in a decline in the standard of living of many people who enter pensionable age.
In its words, women aged 65 or older are worse off than men in the same age group, and the gender gap is one of the highest in the EU
As the European Commission puts it, “the salaried persons who were almost ‘forced’ to give up their private pensions when the two-thirds pension was introduced are now finding themselves with very low pensions, and the gap between their earnings prior to retirement does not allow them to maintain their previous standard of living”.
Indeed, the adequacy report notes that the relative incomes of older people have been experiencing negative trends in the period under review (2008-2016), and that the economy’s growth has resulted in higher prices for services and products such as medical services, rent and communication.
The report therefore shows that one cannot survive on a pension in Malta. In its words, women aged 65 or older are worse off than men in the same age group, and the gender gap is one of the highest in the EU.
The at-risk-of-poverty or social exclusion rate for older people has increased, especially for those aged 75 and over, even though the relative poverty gap for persons aged 65 or over showed a marked improvement.
Finally, the adequacy report makes a number of proposals for more adequate pensions in Malta. These include the introduction of a mechanism that ensures that national insurance contributions after their retirement are reflected in their pensions, that pensions are increased through a formula that reflects 50 per cent wage inflation and 50 per cent retail price inflation as well as the possibility for persons to create their own pensions schemes instead of the state-run one.
Many pensioners are clearly passing through hard times and require other sources of income, assistance or personal sacrifices to make ends meet. Surely, this is not the best of times that is propagated by government-friendly media.
Again, I am putting forward my proposal for national consensus on pensions policy. Cross-generational solidarity is an essential pillar of a caring society.