The Chamber for Small and Medium Enterprises yesterday put forward its proposals for reforming the pension system and urged the government to kick-start the fund with an injection of funds or assets.

Director General Vince Farrugia said that one possible solution could be the transfer of land assets from the Joint Office. “Those lands were given to the Joint Office to be used for social causes. What is more of a social cause than the nation’s pension fund?” he commented.

Mr Farrugia also suggested the government put something into the fund when organisations are privatised. “We should not forget that the wealth gained by such institutions was gained by previous generations, not this one, so something should be put into the fund, once it materialises.” Mr Farrugia pointed out that if the new pension fund were to be put together through contributions alone, it would be very difficult to avoid putting huge burdens on the current and future workforce.

He said that a pension should permit a retiree to keep up a good standard of living as well as purchasing power, so as to contribute to the economy and GDP of the country.

Mr Farrugia said that an autonomous board should be set up to administer a national pension fund. However, he warned that the reform issue should be slowed down. Explaining himself, Mr Farrugia said, “There are many countries that rushed into pension reform and they all made mistakes”.

“We should weigh up the specific effects that each proposal in the reform plan would have on the economy,” Mr Farrugia stressed. He said that if a proper and exhaustive impact assessment is not carried out and reform is rushed due to government budget constraints, then the authorities in 10 years time would have to come up with another reformed system.

In essence, the GRTU was also proposing a three-tier system, however with the difference that only the first tier would carry with it an obligation for contribution. “There can be no opt-out clause in this tier. If you have worked in Malta at any time, you must contribute. However, like we said, the government should make sure that the pension rate is enough to sustain a good standard of living.”

He continued by saying that “For this to happen, however, pension increments should be given according to the salary index and not the increase in cost of living”. Mr Farrugia said that any person with an income needed to contribute a base minimum to this tier.

He also said that the ceiling should not be at a fixed rate as it is now (two-thirds of Lm6,750). “However, it should not be taken as a national average either. It should be calculated on the average of the most “popular” wage. Then, the ceiling also needs to float according to changes in the average figure just taken,” he said. The second tier contribution should not be obligatory. “You would of course get a better pension, but you would at the same time have to contribute more. For example, you could work it out on two-thirds of salary without a ceiling. This tier should also follow the system whereby pension increases according to increases in the salary index,” Mr Farrugia explained.

The third tier, he said, would also be payable according to particular scheme payments that the contributor would have chosen to make. Those who take part in the final tier would not be obliged to make contributions under the other tiers. However, should a person decide to invest in a private pension scheme, he/she would still be obliged to pay contributions under the first tier, Mr Farrugia pointed out.

Mr Farrugia also said that the retirement age should not be arbitrarily raised to 65, saying that fiscal incentives could be given to employees who wanted to work beyond the age of 61. The GRTU said the government would still gain because the person staying on at work would not be dipping into the pension fund and would still be working.

Mr Farrugia suggested 40 years of contribution as a possible benchmark. “Keeping people on at work beyond that age would damage the economy due to a reduction in productivity, competitiveness and eventually the GDP.

This is because those affected would be ‘forced’ to continue working,” he said.

He also urged the media and authorities not to create alarm among present and near-future pensioners. “Don’t think that everyone is like yourselves – streetwise journalists – when pensioners hear all the hue and cry about pensions, they automatically think that their pensions will be chopped,” he said.

Mr Farrugia said this was causing pensioners to spend less, a situation that the GRTU wants to avoid. He urged the government’s PR machine to get into gear in order that it may convey its message more clearly and, as a result, reassure the older generation.

Mr Farrugia also said that the GRTU could not agree with the the World Bank proposing that self-employed contribution goes up to 20 per cent.