Europe is an ageing continent. Its population is decreasing rapidly as a percentage of the world population due mainly to falling fertility rates and longer life expectancy. Forecasts predict that the median age of a European will increase from 37.7 years (2003) to a staggering 52.3 years by 2050. Just to make a comparison, the median age of Americans will rise to 35.4 years in the same time frame. The situation is by and large replicated throughout the continent with some countries experiencing greater declines than others. Some of the worst hit are Italy, Spain and Russia.
Facing up to the combined challenges of demographic change, globalised market economies and an ever changing family lifestyle tasks even the most efficient and forward looking social welfare policy plan and evidently threatens the infrastructure of any healthcare system with the best of intentions. One accepts that policies are specific to cultural, historical and political contexts. In this sense each nation confronts the issue of old age in a particular way. What works well in one country does not necessarily do so in another. Nevertheless, almost all European nations share similarities in institutional structures. Grappling with this reality highlights the necessity of putting in systems that cope with such challenges. Malta is no exception!
As in other countries, Malta is experiencing the double whammy of a declining birth rate and the phenomenon of the retiring ‘baby boomers.’ As the fertility rate decreased from 3.0 children per mother to 2.6 in the space of 10 years (1995-2005), the average age in Malta increased from 35.7 years to 38.5 years in the same period with noticeable increases in the 50 to 80 years plus brackets. It is projected that by 2015 the overall population growth will slow down with over 18 per cent of the population being over 65, a percentage that will apparently rise further to 22 per cent by 2025. That is almost one in every five.
These projected figures have serious implications for the eventual sustainability of Malta’s pension system. There is consensual agreement among many influential institutions that Malta’s pension reform cannot be postponed anymore. The International Monetary Fund (IMF), the World Bank, the European Commission and our own Central Bank are of one chorus − reform the pension system.... NOW!
There are three fundamental reasons why this reform must get off the ground as quickly as possible. Firstly, as demonstrated earlier, the demographics do not add up. A decreasing workforce and a burgeoning swathe of over 65s reveal the disparity between the government’s receipts from national insurance and a continuous increase in the pension bill paid out each year. Based on the present ‘generous’ system this is clearly unsustainable medium to long term.
The second reason to expedite this reform is the uncomfortable position the state/government is facing (sadly self-imposed), as it has to, on its own, find the necessary resources to continue the upkeep of the system. The introduction of the much talked about ‘second pillar’ will relieve some of this stress, as part of the income currently collected from all the working population will not be absorbed into the government’s income stream and will be invested separately. This investment will, in the long term, serve as a qualitative supplement to already stretched pension payouts. This will ensure a fair and reasonable pension come retirement age. Unless this is enacted quickly, future generations will have to grapple with the reality of falling living standards if not actual poverty in old age.
The third reason for this reform is overall financial discipline. For ages the Maltese were formidable savers squirreling away that little bit for a rainy day. As lifestyles change and disposable incomes get gobbled up faster and faster for a myriad of reasons, saving has taken a back seat especially among the younger generations. This dearth of savings will continue to increase pressure on the spending patterns of future pensioners. This reality coupled with an expected longer life expectancy is truly a recipe for disaster. Clearly, awareness is not enough and clear and unequivocal legislation is in order.
Pension reform is always a thorny subject politicians would rather not contemplate on their watch. Yet maintaining the status quo is a non-starter. This government has adopted a gradual approach with a set of parametric reforms to the Pay as You Go component of its pension system in 2007. Measures have been introduced to increase the national retirement age, which will be gradually raised to 65, and also an extension from 30 to 40 years of the social security contribution period on which pension entitlements are worked out. Sadly, discussions regarding the possible introduction of further mandatory or voluntary pension schemes remain bogged down with special interests pulling in opposing directions.
The challenges of this reform are formidable but not impossible. The government, the Opposition, trade unions and employers have a collective responsibility to come together sooner rather than later to ensure that our pension system not only survives but also offers reliable and equitable solutions for our finances in our old age.
[email protected]