The National Insurance Act of 1956 provided for the payment of national insurance contributions and benefits including pensions at a flat rate. The introduction of the two-thirds pension with effect from January 21, 1979 was a big step in the social area as it opened opportunities for workers to have an adequate pension and enhance their income on retirement.
It has to be pointed out that the pension scheme was based on a pay-as-you-go system depending on the workers’ earnings from employment prior to retirement. Therefore, the rate of contribution and the rate of pension paid was calculated on the person’s income. It was tailor-made to address the financial needs of low-wage earners and others with a higher income.
The law provided for the payment of a national minimum pension based on the minimum wage and a maximum pensionable income equivalent to the salary of the President, which was €15,730 per annum.
At that point in time, no projections were carried out to identify and assess what will be the financial impact on the sustainability of the scheme in about 30 to 40 years. No measurers were put in place to prepare for the expenditure on pensions when the baby boomers reach retirement age. No considerations were taken on board of the steady improvement in the health services, making it possible for older people to live longer and, therefore, expenditure increased.
Although the two-thirds pension served its purpose for a long period, today the reality is different and precarious.
With the booming economy, the prices of goods, services, rent and other needs went sky-high and pensions were not upgraded to make them adequate and reflect the relatively fast rate of economic growth and the attendant fast-increasing living costs in Malta. The purchasing power of thousands of pensioners decreased considerably and thousands are at risk of poverty.
This is proved by the fact that the administration is encouraging workers to have a supplementary pension to enhance their income on retirement. It is a pity that employers and this administration are against the introduction of the second pillar pension scheme.
Pensioners’ organisations support the introduction of supplementary pension schemes but the main concern is that it is not affordable for thousands of workers with a low income. This means that the income security of thousands of workers depends entirely on the State pension on attaining pension age.
As pointed out in the editorial of this newspaper on January 29, titled ‘Time to act on pensions’, the number of workers joining private pension schemes is not encouraging and, therefore, the two-thirds State pension will remain the flagship for current and future pensioners for a considerable number of years.
We are at a crossroads. Pensioners’ organisations have raised the alarm since the first pension reform, which took place in 2007. Sadly enough, both political parties ignored completely our proposals and all these years they always took us for a ride for the wrong reasons.
The two-thirds State pension will remain the flagship for current and future pensioners for a considerable number of years
Pensioners’ organisations support what the editorial of the Times of Malta said: “To add insults to injury, the government appears to be looking at the representative body of pensioners representing over 90,000 with an attitude that borders on the disdain.”
It has to be mentioned that the pensions working group took proper measures to ensure the sustainability of the two-thirds pension. On the other hand, it failed completely to address the adequacy problem resulting in the fact that one in four of the pensioners’ population are at risk of poverty.
To complicate matters for current pensioners and for those who retire up to December 31, 2026 various discriminatory measures were introduced.
It has to be pointed out that currently we have two categories of pensioners. Category A are those who were born on January 1, 1962 and later and Category B consists of those born on or before December 31, 1961.
Age discrimination is applied in three particular areas, namely, in the entitlement of a guaranteed national minimum pension, in the capping of the maximum pensionable income and in the yearly re-assessment of a social security pension.
The rates of pension paid to Category A pensioners will be higher than those of Category B. It is a fact that this reform is not addressing the adequacy problem of current pensioners. On the contrary, it is creating an adequacy problem and pushing pensioners further towards poverty or at risk of poverty.
In the editorial it was also reported that the Prime Minister declared that pensioners deserved better and that the government would be delivering. This is good news for pensioners’ organisations because they feel that the time to act on pensions is over.
To celebrate the 40th anniversary of the two-thirds pension in style, it would be nice to deliver and address the problem of the adequacy of pensions for all, especially now that we are experiencing a booming economy.
Carmel Mallia is president of the Alliance of Pensioners Organisations.
This is a Times of Malta print opinion piece