Caroline Galea’s article on pension reform entitled “Time to start reforming the pension system” (TMIS, 19 June) contains serious shortcomings similar to those in the Pensions Working Group (PWG) document recently presented to Parliament. For a start, demographic projections carry no guarantee of accuracy, and immigration from Eastern Europe and Africa might eventually prove these projections wrong.
Like the PWG document, Ms Galea goes on about future pensioners while totally ignoring the plight of the current ones. She seems unaware that our national statistics show that almost half of our pensioners have their pension reduced by varying amounts, mostly related to the problems and injustices created by the pension reform of the late 1970s which, not only abolished the previous Malta civil service Second Pillar pension, but which also negatively affected holders of other Second Pillar pensions, such as British military and public service Second Pillar pensions, and also private company Second Pillar pensions such as those of foreign and local institutions and companies.
Our government now feels very smug about Greeks having their pensions reduced by 20 per cent. In spite of having no Greek financial tragedy type scenario, almost half our pensioners have had pension reductions for decades, and some of these reductions have been of well over 100 per cent. The PWG document dismissed these injustices to current pensioners as little more than fiction, apparently unaware that at a conference at Castille in 2008, the Prime Minister recognised that these pensioners had suffered an injustice.
The Nationalist Party in Opposition had claimed that it would rectify injustices when in government. It took the Nationalist administration 20 years to publicly recognise this pension injustice. However, it claims there are no funds to fully compensate the pensioners affected. Our national statistics do not really support this claim of lack of funds for full compensation of these injustices and to improve the First Pillar pension system. The 1979 pension reform included an amendment that removed “ring-fencing” of National Insurance (NI) contributions and transferred them to the Consolidated Fund, from which all the welfare state is financed. Substantially less pension benefits are paid out than NI contributions are paid in, and surplus contributions have been used to fund other welfare services rather than pensions.
In their 2005 report, the PWG concluded that, “to date successive administrations have failed to establish a pension fund. Rather, revenue generated from contributions, which are specifically meant to contribute to one’s pension income, is directed to the Consolidated Fund to finance general government activity. In truth, successive administrations have failed to manage contributions related to pensions as an investment directed to secure the maximum return to a pension”. In other words, it is not true the government had no funds to improve the First Pillar pension and to fully redress pension injustices created when the previous Second Pillar pension system was abolished. The government has been using contributions intended for pensions to fund other parts of the welfare state. In plain English, the previous ring-fenced pension fund was “ransacked” in the late 1970s when it was incorporated into the Consolidated Fund, and successive administrations have found it convenient not to re-establish a pension fund ring-fenced from the rest of welfare state finances.
We are not against the setting up of a new Second Pillar pension. However, we insist that before this is contemplated, the injustices resulting from the removal of the previous Second Pillar should be conclusively corrected. We also insist that the First Pillar system should be improved before planning a Second Pillar. We have made submissions to the PWG on how we see improvement of the First Pillar in line with international recommendations. Our suggestions are ultimately based on our national statistics, which show that around 20 per cent of our over 65-year-olds are facing poverty levels (poverty levels are based on EU criteria). We find this state of affairs totally unacceptable at a time when government is boasting that our economy is one of the best performing in Europe.
Our Council represents pensioners of seven of the largest unions in Malta, and our opinions and recommendations are based on consensus. I take full responsibility if the above contains any factual inaccuracies.
Albert Cilia-Vincenti
Chairman
Alliance of Pensioners’ Organisations