One cannot help but agree with the sentiment that “pensioners deserve peace of mind” (April 1). However, there seems to be a general misunderstanding about how State pensions are funded.

Although workers pay national insurance all their lives so they can receive a pension when they retire, that money does not go into a pot marked with their name. The contributions made by active workers (partly) go towards the pensions of current beneficiaries.

Think of State-funded pensions as an age-based pyramid, with the workers at the bottom paying for the pensioners at the top. In the past, workers were plenty and most pensioners died shortly after retiring. However, nowadays pensioners live longer and young people have few children.

Thus, to avoid a future pension-funding crisis, either the people at the bottom have to become more productive despite being few in number or a correcting mechanism has to be found to re-invert the (now much fatter) pyramid to its original form, which means swelling the number of those making social security contributions.

Barring a baby-boom (which is unlikely to happen), the only way of adding workers is to import them. It is hard to understand how a logical statement such as that made by Prime Minister Joseph Muscat about the necessary increase in the number of expatriates if Malta’s pensions are to be sustained has ruffled feathers and was even labelled a threat by pensioners’ organisations. The statement is based on sound economic principles.

That is not to say that an increase in migrants is the only option.

The Prime Minister has chosen the least radical route towards pension sustainability. He clearly believes Malta has found a ‘pension sweet spot’ and has reasoned we can run faster to stay in that spot. Of course, we might all run out of breath eventually and, at that point, a smattering of other reforms will have to be introduced but, so far, the increase in expatriates is good and necessary. Pension funding in a changing world will always involve a trade-off.

Pensioners’ organisations need to understand that pensions are funded with the fruits of today’s economy not those of the one they grew up in. They then have to decide which trade-off they are most comfortable living with.

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