Maltese governments have made some very courageous political moves since (and including) Independence. By that I mean those decisions may have carried considerable political cost in the short-term (including electoral costs) but which, in their long-term benefit, can only be described as "visionary".

Some, like the 15-year saga to join the EU, are well known. But there are lesser known ones, primarily because, like seatbelts, in sparing you the risk of great harm, the benefit of having them is easily forgotten. And if there were a prize for this undeserved oblivion, that should go to the pension reform of 2006.

The root of the problem

You don't need to be an expert statistician to realise that, in Malta, on average, people are living longer and less babies are being born than was the case only a few decades ago. However, it takes longer to realise what effect this would have over time: more retired people receiving pensions with less workers contributing to the national insurance fund. In a "business as usual" scenario, the best we could hope for is that, yes, pensions will continue to be paid but they'd be worth so little that today's workers can only be assured of a retirement under the poverty line.

While, in this case, Malta has its peculiarities, it's a problem we share with most of the world's developed countries. No wonder then, that pensions have been the subject of much international study. Evidence-based recommendations have been made, some more painful than others. A pensions reform working group had been established in Malta but the Gonzi government was not one to commission reports and then sit on them.

Grabbing the bull by the horns

So a bill was presented in Parliament in 2006 which, among many other changes, gradually raised retirement age to 65. Alfred Sant, who was last heard of was kicking up a fuss over the EU's preparedness for Ebola, thought this matter to be trivial and promised that a future Labour government would reverse the reforms. Why bother with the sustainability of pensions decades down the road when all you care about is the result of the next election?

Thankfully, Gonzi's government was re-confirmed in office two years later and the reform started to take effect. As are the results: whereas pre-reform the Average Replacement Rate (pension received as a percentage of the last salary received) would have dropped to 18 per cent by 2060, the reform has brought up the estimate to 45 per cent.

No three without two

Pension reform is an ongoing process and the reform of 2006 was never going to be the last word on the matter. Having dealt with "first-pillar pensions", that is, the national social security pension, the next step would have been to make up the shortfall through "second-pillar pensions" (pension funds created by employers and employees) and the voluntary third-pillar pensions.

The order of the "pensions" is not arbitrary: it starts from the fundamentals (state pension), to the mandatory occupational pensions, and finally topped-up with a pension that is the result of investments one makes throughout his working life. Inevitably, as with anything else, handling the fundamentals is the logical thing to do that requires requiring greater political courage. Something the Nationalist government never shied from doing.

Under Labour

It's Labour's turn to govern and to handle the pensions issue. It does so in the now familiar Labour way: try to appear doing something big while taking the line of least resistance. Unsurprisingly, it did not build on the significant achievement of its Nationalist predecessor by moving on to the second pillar but instead chose to move directly to pillar three.

Obviously, there's not much glory to be gained from legislating on pillar three. Oh, may I voluntary invest in a bona fide pension fund? Well, thank you so much, it never crossed my mind that I should be free to invest my money in the way I like. Not that the incentives are very attractive either. The tax breaks offered are limited and subject to a cap.

One is forgiven for thinking that the government treats pension very much like any other investment without seeing the social dimension to it. If the whole thing were to go belly-up, forget the poverty that would ensue and think of it as the risk any other investor is expected to bear.