The fact that those who opt for early retirement are banned from undertaking any form of active legal employment as an employee or self-employed person has many adverse impacts, the Malta Chamber of Commerce has said.
The Chamber was responding to questions posed by this newsroom regarding early retirement, and was asked, among other things, whether it should be considered that people who are entitled to retire at age 61 be allowed to continue working – part-time or at reduced hours – while still receiving a pension, and whether this situation means that the country is throwing a wealth of experience away.
“While the statutory retirement age is 65, there is an early retirement pathway starting from the age of 61 years, subject to having accumulated 40 years of paid annual social security contributions. Those who opt for early retirement are prohibited from active participation in the labour market but may take up some form of employment again when they reach 65 years of age,” the Chamber said.
It said that this policy was intended to discourage people from opting for an early retirement. “It was subsequently complemented by a top-up incentive mechanism for employees who remain in employment until 65 years of age, which increases the state pension income by up to 23%. These measures were successful as according to the 2020 Pension Strategic Review document ‘80% of persons who were born in 1951 remained in full-time employment after they reached age 61 and nearly three-quarters of the cohort born in 1957 was still working after that age.’”
Yet, the Chamber argues: “the fact that those who opt for early retirement are banned from undertaking any form of active legal employment as an employee or self-employed person has many adverse impacts. It is contrary to the EU and government’s declared policy of institutionalising active ageing. It prevents employers from legally retaining or recruiting from a pool of skilled and experienced senior citizens that are immediately available in the labour market. It prevents many experienced and skilled senior citizens from working on a flexitime basis, which would allow them to balance work with the need for more personal time due to health care issues, burnout, and informal care responsibilities such as helping with grandchildren.”
In many cases, the Chamber said, “people who wish or need to work despite being banned because of triggering early retirement choices will find a way to do so. They will engineer employment in the shadow economy resulting in a leakage of revenue to the government resulting from direct and indirect taxation and social security contributions.”
The number of persons who are 65 years of age active in the labour market in Malta is extremely low: 5,400 (4,100 – males, 1,300 – female) persons, the Chamber said. “Tax reforms introduced in the last legislature concerning the taxation of pension income and income earned from employment by senior citizens created a disincentive for active labour participation for persons over 65 years of age.”
The Chamber highlighted that in March 2022, together with the General Workers’ Union, it had recommended that government should adopt a number of measures to increase the active employment of senior citizens. The document recommended that “the existing ‘all or nothing approach’ to early retirement be replaced by a flexi-employment approach, which allows a person to balance their needs to opt-out of a 40-hour week whilst remaining active in the labour market.”
To ensure that such a flexi-employment approach does not become an exit route from retiring at the statutory retirement age, it had suggested that this is governed by conditions that may include: “(i) The pension to be drawn down should the person opt for early retirement at the age of 61 years of age whilst continuing to work pro-rated, for example - Retiring at 61 years of age, the pension income entitled to is pro-rated at 50%; Retiring at 62 years of age, the pension income entitled to is pro-rated at 60%; Retiring at 63 years of age, the pension income entitled to is pro-rated at 70%; Retiring at 64 years of age, the pension income entitled to is pro-rated at 85%. (ii) A person who selects a Flexi-employment approach to retirement must work for a minimum set of hours established through a formal contract between them and their employers and employment registration with Job plus to benefit from the drawing down of the retirement pension.”
The document had also said that the top-up incentive mechanism, whilst proving to be successful, is based on a negative actuarial rate. “This should be replaced by a positive actuarial rate so that more persons are incentivised to remain fully active in the labour market and defer the drawn down of their pension.”
It also said that the tax structure for senior citizens who receive income from continued post-retirement employment and pension income should be re-designed. “It should become an incentive rather than acting as a detriment to continued active employment.”
Such policies would help improve the quality of life of senior citizens and provide employers with a pool of skilled and experienced people who can bridge some of the existing gaps in the labour market. while passing on their skills and knowledge to younger workers, the Chamber said.
Last week, in comments to The Malta Independent on Sunday, the Malta Employers Association and Malta’s two largest unions, the General Workers Union and the UHM-Voice of the Workers argue that given the present situation in the labour market, people who at age 61 choose to “retire” should not be deprived of the possibility of remaining gainfully employed while still receiving a pension.