Pensioners’ Budget expectations - Carmel Mallia
The main objective of the pension reform is to ensure that the first pillar State pension or the two-thirds pension continues to be sustainable and adequate for thousands of pensioners.
The European Commission always maintained that the sustainability and adequacy of pension should be considered as two sides of the same coin.
In reality, in Malta, this is not the case.
While it can be acknowledged that drastic measures were introduced to ensure the sustainability of the two-thirds pension, the adequacy problem was never addressed, is still there and getting worse on a regular basis.
For the last 10 years, the Alliance of Pensioners Organisations always addressed this sensitive issue when presenting its re-commendations to the Minister of Finance for the yearly budget.
With regret, both administrations always ignored our proposals to address the adequacy problem of our State pension.
Recently, it transpired that a report by the European Social Protection Committee and the European Commission confirmed that what the members of our alliance have been saying for years about the adequacy of the two-thirds pension was correct and to the point.
The report says: “The government needs to seek to ensure that pensions are upgraded to make them adequate in reflection to the relatively fast rate of economic growth and the attendant fast increasing living costs in Malta”.
It was also pointed out that Malta’s pension protection is against absolute poverty but does not constitute an adequate income replacement and therefore pensioners are currently facing difficulties in making both ends meet.
In fact, the relative median income rate for older people (65+) decreased between 2008 and 2016. It was also indicated that women are worse off. The report also pointed out that there is age discrimination in various measures introduced in the two-thirds pension, namely in the capping of the maximum pensionable income, the guaranteed national minimum pension and in the yearly reassessment of pension.
Another worrying factor indicated is that while the rate of national minimum pension increased by 63.92 per cent, the maximum rate of pension increased by 23.98 per cent.
In an income-related pension scheme such as the two-thirds pension this practice leads to a precarious situation resulting in unlimited damage to the scheme itself.
In the light of what has been reported about the adequacy of pension, members of the Alliance have their own expectations, which should be discussed in the next Budget by the Minister of Finance.
Pensioners do expect that this is an opportunity for the minister to start practising what he preached six years ago
First of all, early action should be taken to remove the discriminatory measures that exist between pensioners who were born on January 1,1962 and after, Category A, and those born on December 31,1961 and before, Category B.
Then, the first priority should be that of addressing the risk of poverty problem.
It is important to establish a minimum income through pensions and other allowances that are needed for person/s in a household to live in dignity. To be considered as reasonable and adequate the minimum income should match the regular increases in prices for goods, services, rent, health and other essentials.
Weekly increases in the rate of pension as mentioned by the Prime Minister are welcomed. However, this is considered as a short-term measure.
From past experience it can be stated that there is a trend where pensioners have, for example, an increase of four euros per week in their pension, prices may go up by eight euros per week on aggregate. Therefore pensioners become poorer by four euros weekly.
This is one of the reasons leading to risk of poverty for over 22,000 pensioners.
The maximum pensionable income which determines the highest rate of two-thirds pension needs also a review to be fair and reasonable with pensioners who paid the highest rate of social security contribution when they were gainfully occupied.
In this respect matters got worse.
Now we have two different maximum pensionable income (MPI), one for category A and another for category B as indicated already. MPI of category A is €22,803 and that of category B is €18,024.
This means that the rate of two-thirds pension entitlement of category B is €60 per week less than that of category A. This affects the purchasing power of category B pensioners as they grow older.
In terms of law a pension is reviewed on January of each year. Presently the re-assessment of pension is carried out on the current wage/salary. Pensioners are always entitled to the cost of living paid yearly by the State.
In this respect a proper indexation of pension, if possible, including a basket of goods and services needed by older people should be put in place. This is the way to mitigate the erosion of pension entitlement and enhance the purchasing power of pensioners. To improve the income security of pensioners in the long term pensions should be increased on a formula which reflects 50 per cent wage inflation and 50 per cent retail price inflation.
In the Times of Malta (September 5, 2012), when Edward Scicluna was still in Opposition, he said the following as regards “inflation”:
“Inflation hurts our economy in a significant way. It reduces our purchasing power by the same rate of inflation. The worse off are those segments of society on fixed income such as pensioners”.
At present, Scicluna is the Minister of Finance and, therefore, has the authority, an economic boom and a surplus of funds. In the circumstances pensioners do expect that this is an opportunity for the minister to start practising what he preached six years ago.
The adequacy of pension is important for over 95,000 pensioners. As he is aware of the fact that inflation hurts pensioners, early action should be taken to safeguard the income security of all concerned before it is too late.
Carmel Mallia is president of the Alliance of Pensioners Organisations.