Brussels sounds warning on pensions, urges increase in retirement age

The European Commission has warned that Malta remains at high risk to sustain public finances, due to an increase in spending on pensions and other age-related costs such as healthcare that will exceed the EU average considerably and urged the government to raise the retirement age.

In a statement, finance minister Tonio Fenech welcomed the EC's review of Malta's national reform programme fo 2012: "While noting that Malta continues to face several challenges, the Commission is clear in its praise for the steps taken by the government," Fenech said.

"The executive summary points out Malta's investment in adapting its education system to industry requirements, reducing dependency on imported fuels and increase the share of renewable energy, and the progress to raise the skill level of the workforce."

But in its recommendations the EC highlighted pensions as a key area of concern - just a day after the government issued a new communication on the forthcoming pension reform.

"A very low activity rate of older workers, including of older women; a relatively low exit age; and recourse to early retirement schemes add to the scope of the challenge," the Commission said, noting that the government has yet to announce its position on the introduction of new pillars to the pension system.

"Moreover, the National Reform Programme does not propose a comprehensive active-ageing strategy. While noting the measures introduced by Malta to combat undeclared work, its incidence also risks exerting undue pressure on the sustainability of public finances."

Brussels said Malta had to "take action without further delay" to increase the retirement age, by increasing the participation of older workers in the labour force and discourage the use of early retirement schemes; and also encourage private pension savings.

The EC said that while the economy had performed well, this had also created a mismatch between demand and supply of skills, due to a low number of university graduates and high early school-leavers. Malta is expected to present a strategy to tackle early school leaving by end of 2012, but there is no comprehensive system for collecting and analysing information on the phenomenon.

The EC noted that steps have been taken to bring women back into the labour force, but said the gender employment gap and the impact of parenthood were particularly negative for women, primarily due to the lack of affordable childcare, and low uptake of flexitime and teleworking practices.

Brussels also cited higher energy tariffs having hampered the competitiveness of SMEs, but noted efforts for the generation of solar and wind power, and building an electricity interconnector with Sicily.

The Commission also took note of an ongoing review of the Cost Of Living Adjustment index, which it said could be unfair to labour-intensive businesses, and recommended that COLA increase should reflect gains in productivity.

While the objective of the government's budgetary strategy is to reduce the deficit to 0.3% of GDP in 2015, the Commission says this could be slightly skewed due to risks of lower revenue and possible overruns in expenditure; as well as the ongoing restructuring of Air Malta and financial situation of Enemalta.

After peaking at 72% of GDP in 2011, the debt ratio is planned to reach 65.3% of GDP in 2015 - still above the 60% of GDP reference value.