Updated | European Commission reiterates increase of retirement age

Malta has been called on by the European Commission to step up its ongoing pension reform by increasing the statutory retirement age and linking it to changes in life expectancy.

The recommendation is part of corrective measures in the country-specific recommendations the EU released today for all member states, which include among others, a reminder to reduce the deficit by 0.6% of GDP in ensuing years.

Despite still facing challenges regarding the sustainability of Malta’s public finances, little progress can be registered as yet on its pensions system reforms and the sustainability of its healthcare services. While a Pensions Strategy Group was set up to assess all options for reforming the pension system, the Maltese authorities have given a commitment not to raise the statutory retirement age beyond the increases outlined in the 2006 pension reform.

“The statutory retirement age therefore remains disconnected from life expectancy, which poses a problem for the long-term sustainability and adequacy of pensions. While Malta intends to address these shortcomings with labour market measures and notably its recently adopted active ageing strategy, it is unlikely that this solves the problem.

“The sustainability of the healthcare system adds to the challenge in view of a projected increase in age-related expenditure. A draft national health systems strategy has just been launched, but it is unclear how this will be implemented and what gains it will bring in terms of cost-effectiveness and sustainability. There is a need to strengthen public primary care.”

The recommendations included the continuation of policies to reduce early school-leaving and improving the labour market participation of women, as well as diversifying the energy mix in the economy through renewable sources.

Malta’s early school leaving rate is still very high, but measures are being taken to reduce it and a comprehensive monitoring system is being set up. Basic skill attainment remains low, contributing to low literacy and early school leaving.

Malta is currently implementing a number of significant measures that seek to increase the participation of women in the labour market, notably through the provision of free childcare services to households in which parents are in employment or pursuing further education.

“Effective implementation will be crucial. The authorities are also helping to provide after-school care and offering opportunities to send children to school before the stipulated opening hours, so that parenthood can be better reconciled with working life.

“Tax incentives are also envisaged to encourage parents to send children to childcare facilities already running under previous schemes. Little is being done, however, to provide and promote the use of flexible working arrangements, such as teleworking and flexitime, which would help the reintegration of women into the labour market.”

Other recommendations included reducing the length of public procurement procedures; encouraging alternatives to debt-financing of companies through facilitating access to capital markets and developing venture capital funds; and increasing the efficiency of the judicial system by ensuring a timely and efficient implementation of the planned judicial reform.

The EC said that certain public administration inefficiencies were limiting the further development of the business climate in Malta. “While improvements in public procurement go in the right direction, procurement procedures remain excessively long, resulting in inefficient public expenditure.”

Government welcomes EC's recommendations

In a reaction, the government said it was confident that through attentive monitoring of ongoing expenditure and revenue collection and ongoing spending reviews, the government's projections would be achieved.

The government said a Bill on the Fiscal Responsibility Act is currently awaiting its second reading in Parliament, and is expected to be approved in the near future.

While the Prime Minister has reiterated that the retirement age will not go up, the government said the sustainability of the pensions was being addressed through the introduction of the third pillar pension incentive.

“This will encourage low and medium-income individuals to invest in private pensions. The Government will continue to monitor the over-all situation closely,” it said. “We are determined to implementing its 2014 Budget measures that will take steps to address both excessive red tape, and reform the judicial system so that it is an effective and timely recourse for legal redress.”