George Mangion’s article on pensions (“Third pillar –there is hole in the dyke”, TMIS, 4 May) unfortunately exposes the usual ignorance of the most fundamental problem with the Maltese pension system, and which is the main reason why we haven’t got second pillar pensions either in the public or private sector at present. Second pensions in both sectors did exist before 1979 but, since then, Social Security law dictates that whoever has a second pension partly funded by his/her employer, will suffer corresponding deductions from his/her first pillar 2/3rds pension. Legend has it that this more than 30-year-old law, permitting deduction of one pension from another, was enacted to implement “social justice” – that is, nobody (with some exceptions) should enjoy two pensions as this would, presumably, constitute “anti-social behaviour”.

The Nationalist 2008 manifesto promised to remedy this second (also called “service”) pension injustice but their subsequent administration did nothing about it, except promising again to remedy it in the Nationalist 2013 electoral manifesto – this time they costed the suggested remedy (after much lobbying). The Labour 2013 electoral manifesto promised only to re-examine the problem and consult with interested parties and, to be fair, the government has set up two new pension working groups, one for current pension problems and another one for future ones.

There are problems not only with second pensions partly funded by the employer, but also with the first pillar two-thirds pension. Many highly paid individuals are under the false impression that their pension will eventually amount to two-thirds of their best pay at retirement. This is not so – their maximum pension will be two-thirds of around €20,000 (currently) because they paid NI only on the first €20,000 or so of their annual salary – that is, both NI contributions and pension are capped, which is fair enough, but goes against the pension expectations of higher-paid people.

Mangion, like many others (including politicians), mixes up government taxation revenue with NI contributions – the latter are not a tax, but the workers’ contributions towards their pension pot and work-related benefits – according to Maltese law this pot’s contributions come from employees, employers and the state (one-third each) – the state’s share is therefore a minority one. Why the state should decide how this contributions pot is used (whether for pensions or health, for example), when it’s a “minority shareholder” has never (as yet) been tested in a Maltese court whether it is in fact constitutionally legal. The Pensions Working Group recommended re-introducing ring-fencing of NI contributions so they could be managed as a separate investment fund for pensions (ideally by a competent independent body such as the Central Bank). Ring-fencing of the pension pot would expose the real welfare problem – the non-means-tested (except government old-peoples’ homes) and totally free (not even medicine prescription charge) health service.

Albert Cilia-Vincenti

Attard