Published on the Business Today, issue Wednesday, 07 July 2010
Pension’s reform is an issue that urgently needs to be addressed. There have been a number of developments both in Malta as well as overseas with regards to this problem. The aim of this seminar is to bring the main stakeholders together to discuss and analyse the situation – to objectively assess pension reform and examine the options that are open to government, unions, and the private sector alike. Under the current law, the government is legally bound to carry out a periodic, five-yearly strategic review of the reform so one hopes that soon changes are introduced to reflect evolving circumstances. The law stipulates that the first review must be carried out and presented to Parliament by not later than December 31, 2010. According to the Prime Minister, the government will now be considering the introduction of the second pillar pension.
It has set up a study group to explore the best path to introduce private retirement schemes funded by employers and employees to supplement the present state pension. Naturally , the study group will also need to gain further understanding on occupational pension scheme regulation and be conscious on what has been happening in France, Germany and the U.K. It is no wonder that the European Commission which urged the government to introduce with “urgency” reforms in the pension and healthcare sectors to assure the long-term sustainability of Malta’s public finances. So this seminar does not come a moment too soon.
A distinguished panel of speakers will address the subject and answer questions from the audience. Concurrently the European Commission published a draft Green paper on pensions which suggests a number of modifications such as increase in retirement age, the development of diversified pension systems and legislation for greater pension mobility. It is also proposed to set up a common platform responsible for monitoring all aspects of pension policy and related regulations in an integrated manner. Member States are continuously pushed by their voters to provide adequately for pensions and the Green paper recognises that each State has to take account of its financial state of health before it embarks on hasty reforms that cannot be sustainable.
In addition to the common feature of the demographic ageing, each State has to face its own solution based on existing trends in the labour market. Some countries such as Spain and U.K are facing acute unemployment problems and these are realities which need to be faced with dignity and solidarity. On the other hand there is a growing trend of people delaying the time when they start working due to years spent undertaking further education. On its own this factor reduces the number of contributions to the pension pot. Others who work in construction and mining sectors would like to retire earlier because of the hardship common n their trade. In Malta the percentage of women who work after marriage is also a low percentage and this of course will have a negative effect on the contributions. The timing of such a reform comes at a uneasy time of severe economic turbulence which has seen the euro reach its lowest level against the dollar. Further bad news comes from countries such as Greece and Spain amidst doubts whether their austerity programmes will bring forth the necessary economic benefits necessary to reduce their massive indebtness. So with public budgets registering even higher levels it is difficult to see where the extra cash can be found to plug the financial hole. One way forward is for the governments to arrest waste in public sector and fight tax evasion but this on its own will not reap the missing millions although it will certainly help create a sense of self-rightness among politicians.
Again if private schemes are themselves in difficulty because their investments are faring badly then the problem is compounded .Thus economic recovery is a must and the lowering of unemployment, reducing national debt and increasing competitiveness should be the hallmark of the reform. To conclude one hopes that the attendees at the forthcoming seminar will be exposed to viewpoints from a number of distinguished speakers on the subject. Only thus can an intelligent opinion can be formed on how to navigate the choppy waters ahead.
In recent weeks there have been a number of announcements of pension reforms triggered by the effects of the international financial crisis. Projections on demographics in Europe do not give us much scope for rejoice since there will be more pensioners and less workers to fund the pensions pot. The country has discussed this problem and the government had spent over 10 years studying proposals for its solution. It was in 2006 that the government introduced changes to the Social Security Act to start a gradual overhaul of the pension system. But the mandatory implementation of the second pillar was considered to be premature considering the fragility of the employers who have to fund it. The first phase - pillar 1 - consisted of a staggered increase in the retirement age from 61 to 65 years and in the regular contribution period to the state pension from 30 to 40 years.
The reform included the introduction of a second pillar, which would see the setting up of private pension schemes with contributions by employees and employers over and above the national insurance contributions, which are still needed to sustain the basic pension as a guaranteed safety net. Pillar 3 would consist of voluntary schemes. At the moment only half of the people over 50 still works and one third of adult life is spent in retirement. In view these facts the European Commission wants to keep the people in the different Member States to stay longer on the job. Rumours that in a few years the retirement age will go up to 70 for all Members states has raffled some feathers among workers ‘unions. The Commission is proposing five targets to be reached in order to help solve the impasse. To start with they propose to match retirement age to developments related to life expectancy. Secondly it is inevitable that the number of years of contribution to be increased. Thirdly there can be a softening of a shorter working hours per week. Governments have to pocket the extra cost of tax and social incentives and finally establishing a harmonised pension system adhering to common European principles. But is all this acceptable to the Maltese worker? It seems that the last survey on the subject conducted by Professor Mario Vassallo on behalf of The Sunday Times only 38 % agree that the retirement age to go up to 65 let alone 70 years of age. On the other hand, 43.3% are in favour of a system in which one could have a mixture of public and private insurance provision, while the remaining 6.3% are in favour of an exclusively private insurance system. When asked whether National Insurance contributors have a right that others pay for their pensions when they retire, an overwhelming 95.3% stated that this right already exists.
As can be expected at times of high energy costs households feel that any contributions to a second pillar pension scheme should not be taxed. Arguably the younger generation realise that more than their elders that unless they invest in a private pension scheme they might be risking their quality of life when they retire. Naturally both political parties share a duty to continue to guarantee the quality of life erstwhile provided for those who have already benefited from welfare provisions.
I would like to inform readers that PKF are currently organizing a half day semi Lawrence Gonzi during a recent E.U. summit in Brussels. The event is aimed to attract economists, representatives from the government, trade unions and the general public. Its is a follow-up conference on pension reform after the first one was held in 2003, when PM Gonzi (then Social Policy Minister) had also participated as speaker.
Persons interested to attend should contact Audrey –Ann Casingena at 27484375