Chairman of the Pensions Strategy Group Mark Musu told The Malta Independent that the pensions strategy will be launched for public consultation in 17th June.
Prime Minister Joseph Muscat and government have been periodically highlighting the need for a restructuring in the pension system and it seems that the first signs of life in this regard are round the corner.
This newsroom had sent several questions to the Chairman, following Dr Muscat’s statement a few days ago, that some interesting ideas are being formulated and that there will be no rise in NI contributions or retirement age. This newsroom asked for some examples of these solutions, the number of possible solutions identified and how they plan to reform pensions, however the following was received in response.
“I am afraid you will have to wait a little bit longer to have the answers. The proposed pensions strategy will be launched for public consultation on 17th June 2015,” the Chairman said.
Economist Lino Briguglio explained that the Maltese population is an ageing one, and within 15 years the number of workers supporting one pensioner is expected to fall from about four persons now to two persons. “ positive development, in this regard, is that the increased participation of women in the labour force and the increased number of tax-paying immigrant workers may slow down this process”.
Professor Briguglio added that the ‘pay-as-you-go’ pension system (whereby retirees receive pension benefits out of contributions by current workers) is not sustainable. “The various options for reform include further extension of the retirement age (something that the present government has ruled out), and requesting people to save more while they are still working, and directly tying an individual's savings with his/her future pension payments. This could be done in several ways, including by requiring employers to deposit a certain percentage of the employee's salary into his/her individual pension account. The government may also encourage voluntary savings by offering fiscal incentives”.
In February this year the Prime Minister delivered a speech and hinted at possible ideas.
He said that that a sustainable pension system must have a strong active employment policy and that the state pension should be a solid foundation but not necessarily the only source of retirement income.
He mentioned allowing persons who have passed the retirement age to continue working should they wish, voluntary private-pensions as well as home equity release.
“One area, which the Minister for Finance has been studying recently, is home equity release. Most of our pensioners are home owners and have invested most of their incomes to acquire this substantial but very illiquid asset. We want to ensure that pensioners will be able to access this wealth, without necessarily losing ownership completely. Home equity release is already happening in practice and it must be regulated”.
Dr Muscat had spoken of social sustainability, calling for a fair balance between contributions and benefits across generations.
“We cannot expect our social security system to remain unchanging. Otherwise it will become irrelevant. Let me give you one example. At present a worker is only covered on her or his main employment. Consider a cleaner who holds three part-time jobs. She works more than 40 hours, and yet our system will cover just one of her part-time jobs. Under the current system she will be doomed to a whole retirement in poverty after a career of hard work.” Dr Muscat had said.