Introducing third pillar pensions would be the right move because the scheme is not obligatory, the General Workers’ Union and the Malta Employers Association insisted yesterday.

They were replying to a report published in The Malta Independent yesterday, in which the UHM was quoted as saying that only two out of 10 people would afford private pensions.

While not denying the UHM’ claims, the union and employers insisted that if one could not afford third pillar pensions, at least they would have the option of not applying for the scheme. In the case of second pillar pensions, there would not be a choice, and the compulsory contribution would have to be paid irrespective of how much they earned.

Currently, Malta has only a first pillar pension, which is the compulsory, pay-as-you-go state pension. However the European Commission and credit rating agencies have warned that the system is not sustainable because of an ageing population. The previous administration had already raised the pension age to 65, but experts have warned that this is not enough, and is more of a case of “too little too late.”

Two options exist: Second pillar pensions that are compulsory and require the employer and the employee to contribute towards a pension fund, and the third pillar private pension scheme, which is optional. The government is expected to introduce the latter in the coming budget, however there is no consensus on the issue between the social partners that sit on the Malta Council for Economic and Social Development.

MEA director general Joe Farrugia thinks that third pillar pensions would prove to be very popular, but on the other hand, a move towards second pillar pensions would be both unwise and unpopular, and would put a huge burden on employers and employees alike.

According to Mr Farrugia, people are more likely to opt for the third option for a number of reasons, first of which is its voluntary basis. “If you cannot afford it you have the choice of not applying for it. In the second pillar case, you would have no choice but to contribute.”

He insisted that many would prefer to “invest their money their own way.” Many people have already signed up for private pension schemes, and the number of policies keeps increasing every year.

Whilst agreeing that third pillar pensions are the way forward, Mr Farrugia insisted that the government must do its part in making the option more desirable. “One of our proposals to the government was for a tax break on the money invested in private pension schemes. The government could also cap the taxable amount in such policies.”

 

Compulsory scheme not fair on minimum wage workers

The General Workers’ Union is another MCESD partner that is against second pillar pensions. In comments to this newspaper, the GWU said that it “is absolutely against the option since this will be obligatory on the employers and employees at a time when the minimum wage is not providing enough for a decent living. Even worse there are still many hundreds of workers whose wages and conditions are of a precarious nature.”

The union said that “if it is true that the third pillar, on a voluntary basis, will solve the pensions problem for two out of 10 workers, then we shouldn’t wait any longer for its introduction. The more time wasted the bigger the problem will get.”

The GWU said it has been insisting for far too long on the urgent need for measures to be taken and implemented to strengthen the first pillar pensions and that all existing anomalies be remedied and corrected. Part of the pensions problem can only be solved by the creation of employment and by making the labour market attractive to encourage more women to take a job.