Martin Scicluna’s piece on welfare dependency (TMIS, 2 October) repeats the confusion (unfortunately rampant among local economic commentators) of the “welfare gap” being the shortfall between all expenditure and Social Security contributions, with the added implication that pensions are no longer sustainable. Social Security contributions were meant to cover only pensions and work-related benefits, before the Social Security Act of 1979 “broke the contract with pensioners”, removed ring-fencing of their contributions, and transferred their pension contributions to the general taxation pot called the “Consolidated Fund”. The Pensions Working Group (PWG) has repeatedly recommended re-introduction of ring-fencing for Social Security contributions to establish a proper pension fund, financially managed as an investment fund, to provide adequate pensions which would be a safety-net against poverty in old age.
Social Security contributions have consistently exceeded pension and work-related pay-outs, to the extent, that in the last seven years alone, around €350 million have been siphoned off Social Security contributions and transferred to other sections of welfare expenditure. It is therefore entirely fallacious to claim that the current First Pillar pension system is unsustainable, or that there is no money to improve it the way we have suggested to the PWG and to the minister responsible for Social Security. The PWG has also admitted to us that their consultations with the World Bank indicated that improvement of the First Pillar would essentially be self-financing from the increased Social Security contributions of a raised Maximum Pensionable Income, as per our recommendations.
The problem with the “welfare gap” is therefore not pensions, but the other non-means-tested welfare bubbles that Michael Bonello, ex-Central bank Governor, quoted by Martin Scicluna, has been warning us about for several years, and apparently consistently ignored by all the political parties – but then political parties’ priorities and the country’s needs may differ to a dangerous degree. This, not surprisingly, is also the basis of the grave financial situation facing the euro and the European project – the heart of the problem is politicians and not bankers.
Albert Cilia-Vincenti
Chairman
Alliance of Pensioners’ Organisations