In other words, the Pillar One PAYG pension system, as prevailing in Malta, has no overwhelming reason to be considered, currently or in the foreseeable future, as an unsustainable dilemma. Making it a system that constantly delivers decent pensions depends on good economic governance and on what priorities the government of the day gives to its revenue allocations and spending decisions. It appears that there is national consensus that governments should allocate adequate funds out of the general revenue to guarantee pensions that ensure a decent standard of living to retired citizens.

Regarding this Pillar One system, what is so morally unfair for the current generation of workers to contribute to the pensions of current retirees? Over the years, retirees contributed to fund an infrastructure of roads, energy, housing, hospitals, education and whatever else. For over 40 years, through NI payments, Income Tax, VAT and various indirect taxes, haven't retirees contributed enough to be the beneficiaries of a Pay as You Go Pensions System? Condemnable I would say is a whole succession of politicians in governments who waste and mismanage public funds, running up huge deficits and National Debts that jeopardise a sensible "Pay as You Go" Pensions System.

Now besides a First Pillar PAYG Pensions' System, there are two further approaches to pensions' administration. There is what is called a Second Pillar approach whereby employers and employees are legally obliged by the government to pay extra additional pension contributions that will create a pension scheme that is personal and particular to each single employee. This personal Pension Scheme will travel with the employee from one job to another.

Governments look upon Second Pillar Pensions as supplementary and in parallel to a First Pillar set-up. This implies that the introduction of a compulsory Second Pillar alongside a First will result in additional deductions to employees' salaries and additional costs to employers. In as much as a Second Pillar pension system will increase the cost of labour, the MEA does not favour its introduction, definitely not in the foreseeable future. This increase will percolate down to the cost and price of businesses' and industries' end services and products, rendering them less competitive. Foreign direct investors too will be less inclined to invest in an expensive work environment.  Unions invariably do not favour obligatory Second Pillar proposals as this will result in an imposed reduction in the take home pay of employees.  For the aforementioned reasons, the present Labour government too is not in favour, and has emphatically declared no plan for the introduction, in the foreseeable future, of an obligatory Second Pillar Pension option.

The Opposition, the Chamber of Commerce and it seems the Union Haddiema Maghqudin (UHM), do not agree. The Opposition has declared its support for the imminent introduction of a compulsory Second Pillar option and the Chamber of Commerce does not oppose such an introduction, declaring a Second Pillar to be an inevitable and required development. The UHM is of the same opinion as Chamber. 

Now besides the Second Pillar there is a third pillar approach. This Third Pillar, similar to the Second Pillar, is also to be considered additional to the First Pillar set up. This Third Pillar consists in a voluntary setting aside of savings by the individual employee, savings to be invested in a private personal pension scheme.  Such savings would provide an additional pension salary as well as lump sum payments to the retiree on the date of retirement.

Here, the government must intervene effectively to encourage this voluntary Third Pillar take up. This encouragement will come through significant tax benefits to whoever opts to go this way.  Employees must be encouraged and incentivised to develop an ethic of personal responsible saving for their future. Tax benefits for savers will go to make such positive voluntary behaviour worthwhile to the individual. 

This Labour government has adopted the Third Pillar option and the Minister of Finance has announced defined tax benefits that will accrue to whoever chooses to invest in a pension endowment policy. The MEA fully supports the Labour government's adoption of this Third Pillar option and believes such an approach will go to reduce a future possibility of poverty line pensions.

The insurance sector here has an interest and a role to fulfil, and contribute to a Third Pillar success by providing flexible and attractive retirement insurance products.

The raising of the pension age by the Nationalist Government some years back was a very courageous and responsible decision that was taken irrespective of its unpopularity. This delay to the pension entitlement contributes enormously to the sustainability of our First Pillar PAYG Pensions System.  It implies that able-bodied and capable persons will keep working beyond pension age, while contributing further to general economic wealth creation, while simultaneously not availing themselves of Pension payments.

A further additional support to the adequacy of Malta's Pension System will come from encouraging pension age retirees to continue in employment. This voluntary prolongation of one's working life, (part-time work, reduced week, reduced hours), will result in the ability to supplement and increase one's pension income and thus avoid poverty traps.

In conclusion, MEA is very much in favour of the government's current effort to support and encourage a widespread voluntary adoption of Third Pillar Pensions. The government is correct in spearheading this effort with tax concessions to whoever opts to go the Third Pillar way.

In ruling out an immediate compulsory Second Pillar scheme, this government is avoiding a reduction in employees' disposable incomes. This government also appears very conscious not to add further costs to employers as these will result in more expensive services and products.

It will make sense to have National Insurance Contributions accounted for exclusively for Pensions' Payments and work-related benefits only. General health expenditures, including Mater Dei Hospital and medicines, should be hived off on their own and must not feature as labour costs that are directly reflected in the cost and price of a company's service or product, thus making it less competitive and less saleable.

Finally, this whole argumentation must not ignore the fact that demographic 20-year projections do point out that an isolated First Pillar PAYG system will come under severe stress. This, as the ratio between the gainfully employed and retired citizens might go down from four workers to one retiree to two workers to one retiree. This is not a problem to be overlooked; however it may not be so serious if one takes into consideration the current trend of increased female participation in the workforce as well as the influx of foreign workers. 

So a Third Pillar voluntary approach must be consistently sustained perhaps not with just tax exemptions but also with direct government bonus payments made to the personal pension schemes of citizens who are prepared to invest, through a Third Pillar option in their future.