Pension enhancements in the best of times - Michael Falzon
Michael Briguglio’s article ‘Pension cuts in the best of times’ (February 18) tries to give the impression that in recent years State pensions have been cut. The reality is that spending on State pensions has risen year after year. In 2019 spending on retirement pensions is set to reach €570.2 million, while that on widows’ pensions is expected to amount to €146.1 million. Back in 2012 spending on retirement pensions was €377.4 million while that on widows’ pensions stood at €114 million. This means that in seven years spending on retirement and widows’ pensions will have grown by €225 million, or 46 per cent.
In his article, Briguglio implies that contributions are enough to cover contributory benefits. This is not the case. The contributions collected from employers, employees and the self-employed will total €687.4 million in 2019. Spending on contributory benefits will total €830.5 million in 2019. Thus while Briguglio gave the impression that there would not be a welfare gap if one excluded administration expenses and expenses in connection with health services, in actual fact contributions cover less than 83 per cent of current contributory expenses. The State contribution which Briguglio counts as revenue towards the scheme is not derived from social security contributions but is a virtual transfer from the consolidated fund.
Back in 2005, the year before the first pension reform was carried out, contributions used to cover 85 per cent of contributory benefits. By 2012 this had dropped to 73 per cent. The buoyant economic growth our country has experienced over recent years, together with the added contributions made by foreign workers who came to Malta, has meant that despite a very pronounced rise in pension spending, in relative terms contributory revenue is now covering contributory expenses a bit more. However, the growth in the number of pensioners and in the average pension they receive has meant that the gap between revenues and expenditures has remained very substantial.
Our country still faces a demographic transition that requires the careful management of the pension system
The 2010 pensions strategic review had been based on projections of a much slower rate of economic growth and very little migration to Malta. This review had projected a welfare gap of seven per cent of GDP by 2050. The 2015 pensions strategic review, which took into account higher economic growth and migration, shows a welfare gap of three per cent by 2050 (I hope the Nationalist Party, Briguglio and others do not continue to deny this fact and attribute twisted and fictitious statements to government speakers). What this means is that whereas before the recent rise in economic activity and migration, the pensions system faced a significant sustainability challenge (which is why rating agencies and the European Commission were pressuring previous governments to take action to reduce pension generosity), now the challenge is somewhat reduced, although still there.
Our country still faces a demographic transition that requires the careful management of the pension system. The government has, in fact, reappointed a Pensions Strategy Group which is assessing options on how to continue improving the generosity of the system while also addressing sustainability of future expenditure. To give the impression, as Briguglio tried to do in his article, that pensions do not face any sustainability challenges is a clear misconstruing of facts.
Pay-as-you-go systems all around the world are under considerable stress, and in most countries in recent years there have been cuts in generosity – particularly through higher retirement ages. This administration is committed not to undertake austerity measures but instead try to find a sustainable balance between revenues and expenditures that is fair across different generations.
Briguglio also makes reference to a letter he wrote to me a few weeks back concerning Malta government service pension recipients as well as British Service pension recipients. Due to limitation of space, I shall be replying to his letter separately. However, in this context, I remind him that measures aimed at service pensioners have intensified under the current administration and as a result, every year thousands of pensioners are now enjoying in full both their Maltese or foreign service pension as well as their social security pension. Such numbers will continue to increase year after year.
Finally, I suggest to Briguglio to read my reply to Parliamentary Question 8337, dated January 15, 2019. Had he read it before he penned his article, he would have realised that pensioners today are enjoying several enhancements in their pension and benefits, not cuts.
Michael Falzon is Minister for the Family, Children’s Rights and Social Solidarity.
This is a Times of Malta print opinion piece