The current Pensions Strategy Group has noted that the budget measure announcing the extension by one year of the stipulated contributory period for persons born in 1976 and after, has become a matter of contention and has led to other misleading interpretations including the lengthening of the statutory retirement age by one year.

The Group would like to put the record straight and to underline that through this measure, there will be no change in retirement age for individuals born in 1976 and after.

The budget measure in question emanated from the pension reform of 2016 which embedded the principle that the number of contributory years required for a full pension should correlate to the number of projected years an individual would be in receipt of a pension. It was intentionally designed to underpin the fiscal adequacy and sustainability of pensions, and to keep a fair balance between contributions and pensions across generations.

The same reform stipulated that persons affected by changes in the contributory period should be legally given an advance notice of 15 years prior to their retirement. As a matter of fact, this provision was applied when the contributory period for persons born in 1969 or after was raised from 40 to 41 years.

The legal instrument for these changes was unanimously approved by Parliament in February of 2016 following consultations with social partners and other stakeholders by the erstwhile Pensions Strategy Group.

Similar wide-ranging consultations, including within the MCESD, were held five years later by the 2020 Pension Strategy Group and the ensuing measures and recommendations were published as part of Malta's Pension Action Plan in November 2022. The plan was agreed with the European Commission and was a requirement for the granting of funds as part of the EU's post-covid Recovery and Resilience Plan.

The 2020 Group's review of the life expectancy of persons born in the 1970s and after, found that the contribution requirement had fallen below the 1.97 target ratio established in 2016 and, as a result, it recommended to raise the contributory period to 42 years for persons born in 1976 or after; and to trigger the 15-year notice period at the opportune time. It is precisely this which the announced budget measure has put into effect, without in any way prolonging the age of retirement.

In addition, the pension reform of 2006, that is 10 years earlier, had increased the contributory period from 30 to 40 years while also raising the statutory retirement age from 60 years for females and 61 years for males, to 65 years. At the time these changes were considered necessary; and so, is this latest measure. 

It is important to clarify that entitlement to a full two-thirds pension requires 42 years of contributions, which can be accumulated over a 47-year span from ages 18 to 65. This means that most people can reach the required 42 years of contributions during their working life.

For those who pursue tertiary education, Social Security legislation allows for partial coverage of these gap years through credited contributions. For example, individuals born in 1962 or later who complete a four-year degree can receive two years of contribution credits. Thus, someone starting work at 22 after graduation could potentially accumulate up to 43 years of contributions by age 65, along with the credited years. Additional credits are granted for those pursuing Master's or Ph.D. studies.

Likewise, parents born on or after 1962, who take career breaks to raise children are eligible for up to four years of contribution credits per child for the first three children, and two years per child thereafter. For children with disabilities, the credits are doubled.

Periods of unemployment, sickness, invalidity, occupational injury, or informal caring are also suitably covered by credit contributions.

An employee has also the option of paying up to five years of missing contributions on reaching 59 years of age, but before 65 years of age.

The maximum contributory period is required for full pension entitlement to be achieved, but if an individual opts to retire with less than the required maximum number of contributions or credits, he or she would still receive a pension, but at a reduced rate.

In sum, this means that pension entitlement will not be postponed, nor will the statutory retirement age be raised. In fact, contributions are not legally required beyond age 65, so the idea that one must work past 65 to qualify for a full pension under this new measure is entirely inaccurate.

This article was written on behalf of the Pensions Strategy Group. Mark Musù is the chairperson. Other members are Alexia Vella, Grazio Barbara, Anthony Borg, Helena Holland, Francis Camilleri, Stephanie Mifsud, Aaron Grech, Stephanie Fabri and Bernard Mamo