By the end of 2016, Malta’s pension entitlements amounted to €25.1 billion, equivalent to 242.3 per cent of GDP, the NSO said today.
Accrued-to-date pension entitlements (ADLs) represent the current value of pensions to be paid out in future periods based on rights accumulated by each contributor during his or her working life. These entitlements provide two different perspectives, as the (i) households (creditors) entitlements are equivalent to the (ii) pension providers (debtors) liabilities.
By the end of 2016, total pension entitlements for Malta amounted to €25.1 billion (242.3 per cent of GDP). The majority of these entitlements were accumulated by members of the Social Security Pension System, with €22.6 billion or 90.0 per cent of the total entitlements covering social security pensions.
Between 2012 and 2016, Social Security Pension entitlements rose by €4.8 billion reflecting the growing trend in employment. On the other hand, Treasury entitlements dropped by €0.1 billion and represented 10.0 per cent of the total pension entitlements by the end of 2016. The decline is a result of the Treasury pension being replaced by the Two-Thirds pension in 1979 and hence closed to any new Government employees.
Furthermore, in recent years an increasing number of employees eligible to receive a Treasury pension are reaching retirement age and so are not required to further contribute to the system. In 2016, social contributions paid under the Social Security Pension system totalled €1.6 billion, reflecting an increase of more than €0.4 billion from 2012.
Total pension payments amounted to €0.7 billion by the end of 2016, more than three quarters of which was used to cover Old Age type pensions. Between 2012 and 2016 Treasury Pension entitlements dropped by €0.1 billion, from €2.6 billion in 2012 to €2.5 billion in 2016, following a decline in contributors to the Treasury system registered between 2015 and 2016. Pension payments for the year 2015 totalled €0.1 billion, almost all of which was used to cover Old Age type pensions.
In addition to the standard discount rate of 3 per cent, different discount rates were also applied to the ADLs model to test its robustness. Entitlements were re-calculated using discount rates of 2 per cent and 4 per cent, with results showing that a higher discount rate leads to a lower present value of pension entitlements implying that the two variables are inversely correlated.
In fact, 2016 pension obligations amounted to €20.6 billion when a discount rate of 4 per cent was used; €4.4 billion lower than the original entitlements computed using the standard 3 per cent discount rate. The opposite was true when a 2 per cent rate was applied with pension entitlements rising to €31.1 billion by the end of 2016. International Comparison: 2015 Malta’s pension entitlements amounted to 257.2 per cent of GDP in 2015, ranking it in 11th place among the 29 European countries (26 EU Member States, Iceland, Norway and Switzerland) that have currently published the data.
The United Kingdom recorded the largest ratio of entitlements-to-GDP with 402.0 per cent followed by Austria (376.2 per cent) and France (368.8 per cent). At the other end of the spectrum, Denmark registered the lowest share with their obligations amounting to 95.9 per cent of their GDP by the end of 2015.