The gender pension gap is the percentage difference in average pension income between men and women. The EU considers it to be an important indicator with which to measure whether such gap is narrowing or not.

Recent media coverage on gender pension equality in Malta has focused on the fact that on the basis of this indicator, the country has the highest average pension gender gap in the EU. The situation, prima facie, appears to be getting worse despite several pension policies that have expressly targeted women.

The gender average pension gap has widened markedly, rising from 31.5% in 2015 to over 40% by 2024. This development appears paradoxical given a series of pension reforms introduced by the Maltese government that benefited relatively more women. These reforms include the gradual extension of survivors' pension rights, the award of contribution credits for care-related career interruptions, revisions addressing historical discrimination, significant increases in the minimum pension, and uniform pension increases in nominal terms, which favour lower pension recipients. While Malta has in recent years achieved notable progress in female labour market participation, political representation, and career advancement, pensions remain an apparent outlier.

The income of elderly women has clearly improved greatly in recent years, with the proportion of women in material and social deprivation dropping considerably, from 13.3% in 2015 to 10.7% in 2024. Elderly women also felt less poor, with the subjective poverty rate falling from 19% to 15.4% over the same decade.

In fact, the widening gender pension gap is largely a statistical artefact. Gender pension equality measures ignore those without any pension, and thus when these persons, mostly women, start receiving a small pension or an annual post pension-age grant, the overall picture appears to worsen even though for such beneficiaries, pension income has in fact improved.

In the Budget Speech for 2015, the Minister for Finance introduced the deficiency contributory bonus so that persons aged between 62 and 74 started to receive an annual payment if they had paid some social security contributions but not enough to qualify for a pension. In later budgets this bonus was improved, and it is now payable throughout the rest of their life and can amount from a minimum of €600 to up to €1,050 depending on the number of contributions made. About 14,000 persons, mostly married women, receive this annual benefit, with an overall outlay of €11.3 million in 2025, and an average benefit of some €800.

As the benefit is paid only to those above the pension age, who had made some social security contributions, it is treated as a "pension" in official statistics. As a result, its introduction led to a sharp rise in the number of female pensioners, evidenced in the drop in the pension coverage gap, that is the percentage difference in the number of male and female pensioners. Whereas in 2015 there was a gap of 24.6 percentage points in the share of men getting a pension when compared to that of women, by 2024 this had shrunk to 6.3 percentage points. The introduction of the deficiency contribution bonus meant that many women joined the pensions distribution with relatively small pensions, amounting to the equivalent of less than one month's worth of the minimum pension.

Having thousands of women receiving an average benefit of around €800 per annum resulted in "reducing" the average pension of women by the same amount in a perverse statistical quirk, thereby mechanically increasing the gender average pension gap. A fifth of Malta's supposed gender pension inequality is due to the introduction of the deficiency contributory benefit, a measure that undoubtedly improved women's old age entitlements.

Perversely stopping the payment of this benefit would substantially reduce the measured increase in the gender pension gap and significantly improve Malta's relative standing within the EU. This highlights a central paradox: policies that expand pension coverage and raise incomes at the bottom of the distribution can worsen headline inequality indicators if those indicators are poorly designed.

The same development has characterised Malta's success in increasing female labour market participation. The women joining the labour force tend to have relatively low wages, mostly as they work reduced hours if they are mothers or enter low-skilled jobs if they had never worked before and have limited skills. This increases the degree of wage inequality, as a low wage affects the wage distribution while no wage does not. At the same time, the rising national median income caused by more women working makes pensioners look as relatively less rich, even though rising incomes usually mean that higher pensions are awarded. A positive economic development can show up as a negative development in terms of EU-level policy targets.

Current policies and the social situation now are addressing gender gaps, but due to the way the gap is defined, things will appear worse than they are.

Dr Aaron G. Grech is Chief Officer in the Economics Division at the Central Bank of Malta.