One week after the Prime Minister announced a limited revision of the state pension and the few knee-jerk reactions that followed, the general view is that the changes are good but certainly not enough to address the problem.

Dr Lawrence Gonzi told party activists in Rabat last Sunday that the reforms drawn up by World Bank experts among others were intended not to give shocks to the economy. However, it is also clear that the proposed reforms stop short of the much discussed three-tier solution that had been proposed by insurance experts and outlined in reports drawn up by various commissions set up since 1998.

Nearly everybody agrees that changing the existing structure of the state pension is a must if workers in their 20s today can hope to get a decent pension when they retire. Not everybody agrees on how this reform should take place and to what extent but no one has any doubt that in 25 years, the number of workers will not be enough to support an ever-growing elderly population. It also a known fact that the maximum pension today will not, in 20-25 years’ time, be enough to guarantee a decent living.

At present, the maximum two-thirds pensions, based on 30 years’ contributions, and related to a salary capped at Lm6,750 for pension purposes, is just Lm4,500. The minimum pension one can receive is fixed at four-fifths of the minimum wage. Even the harshest critics of the reforms will agree that the capping had to change.

There are three main changes to the system: first, the retirement age has been raised to 65 years over 20 years; second, the average income of the best 10 years in one’s final 20 in pensionable employment will be taken as against the present best three out of the final 10 years for employees, and, the average of the final 10 years for the self-occupied, and relating the minimum pension to 60 per cent of median income (rather than to four-fifths of the minimum wage); and, third, gradually raising the maximum pension to Lm9,000.

As economist Lino Spiteri pointed out last week, the main criticism of the proposals is not that they are too ambitious, too soon but rather too little and a bit late.

The government has shied away from introducing changes to the constitution of the worker’s contribution to be able to set up a supplementary pension. Although this would put an added burden on the worker and the employer, it is a system that, in the long-term, increases the amount of pension an employee will receive when he retires. The government said it is studying the implications of such changes. Fair enough, but what has the government been doing for the past five years if not assessing the implications of pensions reform?

A decision on the third-tier and incentives to encourage people to take out a voluntary pension would have been welcome even if the government does not want to introduce a supplementary pension at the moment. This is one area that would have little impact on government finances and a tax incentive would help generate increased investment in these schemes.

The government has taken a very cautious approach to pension reform, which is somewhat surprising. The government has had more than five years to come up with an overall package of proposals. There is nothing substantial in what the government announced last week except what people had been expecting, that is a rise in the pension age and an increase in the maximum two-thirds pension.

The government is still discussing the basics. Although rash decisions can lead to disastrous outcomes, the country cannot wait another 10 years for the whole reform package. Hopefully, between now and the publication of the bill, the government will come out more relevant and substantial proposals.