Our pensions dilemma

This week I had an interesting discussion on Facebook with a couple of gentlemen who did not see eye to eye with me on the state of the country's pension system.

According to one of them, an elderly gentleman who is currently retired and who is already in receipt of a pension, pensions are a basic and fundamental right of every Maltese and we need not worry about the future because that is the way it always will be.

According to the other, a self-employed worker who does manual work, retiring at 61 and receiving a pension is his right, because he has paid national insurance all his life.

They both believed that the national insurance paid by workers is deposited in a fund that is saved for future pensions. When told that this was not the case they adamantly insisted that the money was in a vault somewhere just waiting to be withdrawn upon retirement.

I tried to explain to them that it does not quite work like that and that workers nowadays need to make separate plans for their retirement unless they want to end up practically destitute in their old age. Having a pension provided by the State is all well and good, but if it is so low that we will all end up living below the poverty line, then clearly we have a problem and we cannot afford to keep putting the issue on the back-burner.

Unfortunately, I did not get very far with the gentlemen in question - their stock answer was that after paying the 'bolla balla' for years on end they fully expected that everyone would retire at the stroke of midnight on their 61st birthday and receive a generous pension that would allow them to swan off into the sunset.

The experience was rather a frustrating one and I started to get a feel for what politicians go through when trying to push through important reforms. There really is no reasoning with some people.

However our politicians are elected to lead and the fact that a good percentage of the population does not quite get it is not an excuse to opt out of doing what needs to be done.

I quote here from the country-specific recommendations made by the European Commission in 2012. According to them the Maltese government should:

'Take action, without further delay, to ensure the long-term sustainability of the pension system, comprising (i) a significant acceleration of the progressive increase in the retirement age compared to current legislation, (ii) a clear link between the statutory retirement age and life expectancy and (iii) measures to encourage private pension savings. Take measures to increase the participation of older workers in the labour force and discourage the use of early retirement schemes.'

For more information about the recommendations I am quoting, please refer to:

http://ec.europa.eu/europe2020/europe-2020-in-your-country/malta/index_en.htm.

The government is very much aware that we have a pension time bomb ticking away in our midst. In 2005 a report was published by the Pensions Working Group - a committee that has been charged with studying the sustainability of the local State pension scheme and making appropriate recommendations. Fortunately the powers-that-be took note of the suggestions made in the report and took concrete action to try to address the situation. Those of us who were 45 or younger as at January 2007 will be retiring at 65 and must contribute for 40 years prior to becoming eligible for a pension. Furthermore, policies were put in place to encourage more women to join the workforce and more workers who had reached retirement age to continue working.

These policies are now starting to bear fruit; however the reality is that it is still not enough to safeguard pensions. According to David Spiteri Gingell (chairman of the Pensions Working Group) a review of the situation at the end of 2010 revealed that although progress has been made, we still have a long way to go: 'The pension system, despite the parametric reforms to the first pension in 2007, will fall short of securing over time an average pension replacement rate that will bridge to the degree possible the quality of life to be enjoyed by a pensioner as compared to that enjoyed during his or her employment... even if one had to consider the fact that a pension is complemented by other health care or social security pensioner directed benefits'.

This is not good news and it is clear that those of us who are looking forward to retiring in 20 to 30 years' time need to put in place a proper financial plan to ensure that we do not end up destitute when the time comes for us to hang up our hat and relax. It is in fact astounding, and to a certain extent shocking, that our politicians are acting in such a cavalier fashion when it comes to explaining the situation to the public. The truth is that there is a large cohort of Maltese who are going to be in dire straits when they retire - but they are not taking action to safeguard themselves (for example by investing in a private pension or saving their money for the future) because they are being told that we do not have a problem and they have nothing to worry about.

We can bury our heads in the sand when it comes to pension sustainability - but there is no way we can escape reality for ever. The longer we put off doing something about the situation, the harder we will be hit when we are finally forced by circumstances to face the facts.

Intimidation by the Armier Lobby

We have all heard about the threatening letters received by Michael Briguglio of AD. The threats were in themselves shocking, but what was even worse was a fact that was not widely covered by the media. Michael Briguglio no longer lives in the house where the letter was sent and where various other intimidating acts have taken place (e.g. banging on the door in the middle of the night). The poor family who purchased Michael Briguglio's house have been subjected to a terrible ordeal over the last few weeks, and they are still worried that more will come their way. Disgusting.