So far, the shortfall between pension payments and contributions in Malta still appears sustainable, but for how long will it last? Up until some time ago, the number of people in work kept falling while the number of pensioners kept rising. Lately, however, the number of people at work appears to be growing, but the number of pensioners keeps rising faster. The prospect of Malta's pension time bomb, primed to explode sooner or later, seems to make Maltese policymakers feel smug.

Up until 2013, the affordability problem of the state pension was solved by the conservative nationalist party, which stopped uprating pensions in line with rising average earnings. In doing so, they consigned a generation of workers who had made no other provision for their retirement to poverty. At the time, we had a cut-price state pension scheme that was cheap to run.

Yet, today, the price is still being paid by a generation of pensioners who are seeing their standard of living fall behind the general population. Pensions have risen in line with inflation but keep failing to keep up with living standards as average earnings have soared. For a long time now, the message to the working population has been to never rely on the state for a decent post-retirement income.

There are wasted human resources that could be drawn into the workforce to help offset the rise in the number of pensioners. Furthermore, Malta’s current generous pension rates may have to be capped for those joining the workforce to make the schemes more affordable. The message has far too long been written on the wall: the pension time bomb must somehow or other be defused and taxpayer-funded pensions must have a future guaranteed.

Despite easily predictable worker and union protests, the government must seriously consider imposing and legislating for faster pension age rises. We are already facing a “pension time bomb”. The pension savings gap, that is to say, the shortfall between current retirement pots and the amount of money needed to maintain an income of two-thirds of pre-retirement levels, keeps getting wider. The anticipated increase in longevity and resulting ageing populations can be described, with no stretch of the imagination, as the financial equivalent of climate change. Applying a modicum of logic and simple mathematics, if increases in life expectancy are matched by corresponding increases in retirement age, the challenge would be less acute.

But there is more to it. Pension reform in Malta has been an evolutionary process. An important milestone was recorded in 2006 when the government introduced a mechanism whereby a strategic review of the local pension system is to be tabled at the House of Representatives every five years. In this regard, a Pensions Strategy Group was set up to present policy recommendations, taking into consideration the current and future challenges of the pension system. Since then, we have had a few reports that came up with several recommendations that provide a strong basis for possible reform. While various recommendations have been implemented, others have not.

An ageing population is a feature of all advanced economies. Recognition must be given to the considerable challenges population ageing presents for decision-makers, as revenue and expenditure are adversely affected. Pension expenditure is both the largest component of age-related expenditure and the expenditure component where the largest increase will occur over the coming decades.

In the modern concept of the three “pillars” of pension provision, we simply have a publicly managed first pillar consisting of a basic contributory and non-contributory pension. Its policy objective is poverty alleviation, keeping workers out of poverty in retirement. To my mind, we are still lacking a mandatory occupational pension for our workforce, which would go a long way in softening the big challenge lying ahead. Statistics still show low coverage of workers actively saving for retirement in a workplace or private pension. The high number of workers who are exclusively reliant on the state pension for income in retirement heightens the importance of achieving some kind of objective to protect against poverty.

Notwithstanding political propaganda to the contrary, improvements in the state pension and secondary welfare supports by the last two labour administrations have somewhat reduced the at-risk-of-poverty rate for pensioners. At the same time, the state pension remains quite complex, with lots of qualifying conditions that are not easily understood and are not always fair. Recently, however, the introduction of a few provisions has been instrumental in improving coverage. For example, crediting contributions to workers who are temporarily inactive through, for example, illness, unemployment or providing full-time care has preserved the social insurance record of many workers, women in particular, and thus their future pension entitlement.

Population ageing will remain a major societal challenge for Malta, driven by increasing life expectancies and reduced fertility. A key challenge for future governments arising from such profound changes is the sustainability of current levels of pension provision. The adequacy of pension incomes will be a constant at the forefront of policy discussions. Our policymakers are already and will continue to be concerned about the adequacy of pensions. What constitutes a decent or acceptable standard of living, however, is going to be a thorny question in the coming years. An emotionally charged tension already exists between sustainability and adequacy and is bound to get stronger.

As a retired person, it was nice for me to get out of the rat race, but I am also learning to get along with less cheese. I always imagined retirement to be like a long vacation in a quiet, beautiful spot. The goal is supposed to be to enjoy it to the fullest, but not so fully that you run out of money.