De Marco tells PM to start discussion on second pillar pensions

Second pillar pensions not in government plans • Video Ray Attard

The government and opposition have retained their divergent views on second pillar pensions with Prime Minister Joseph Muscat candidly admitting that the position of the two sides of the House on a sustainable pension system were “very far from each other”.

Muscat and PN deputy leader Mario de Marco were participating in a conference on the sustainability of the pensions system organised by the Institute of Financial Services and the Times of Malta.

De Marco urged the government to start discussing the possibility of introducing an occupational, second pillar pension in Malta.

“Now is the time… Although Labour has already dismissed the suggestion, perhaps even losing a possibility for a bipartisan approach, I hope there is still time for a rethink. The second pillar is more equitable with stronger sustainability,” de Marco said.

On his part, Prime Minister Joseph Muscat said that while there was an obvious departure from how the two sides are looking at things, this should not prevent the two sides from entering into discussions.

But Muscat made it clear that his government was against any further increases to retirement age.

He said the state pension had a solid foundation, but it was not necessarily the only source of retirement income. “Some of you may want more generous incentives. Some of you may have wanted larger tax credits. Rome was not built in a day, and we need to be careful not to repeat the mistakes of other countries. A look at the UK’s history in this area, for instance, shows us that if pursued too aggressively the promotion of private pensions can be self-defeating, especially if not accompanied by a campaign of financial education.

“We do not want to have pension misselling scandals here in Malta. I am confident that the local financial services industry will yet again rise to the challenge, deliver safe and adequate products and create yet another economic sector out of nowhere like it has done in so many other areas in the past,” Muscat said.

De Marco, earlier, had in fact pointed out whether the tax rebate for the third pillar pension was generous enough to encourage private citizens to invest in a private pension.

He also called for further details on how the private pension would work, at which age savers can start tapping into their savings, and the amount that can be withdrawn each time.

Crucial stats

• Globally, the Maltese had €17 billion in savings, most of which were in liquid form.
• Despite the relative number of participating labour workforce, the welfare gap remains substantial. The old age dependency ratio has been on the increase since the 80s but remains below the EU average.
• Life expectancy at birth is projected to increase by 6.4 years for males and 6.3 years for females over period 2013-2060. Fertility rate is expected to reach 1.78 for Malta by 2060.
• The island suffered drastic falls in fertility rate from 3.6 in the 1960s to the more recent 1.4.
• Total population is expected to rise to 476,000 by end 2060 with the number of older dependants expected to continue rising.
• At around 6%, Malta has the lowest unemployment rate.

Muscat said changes in pensions after 1997 were meant to temper the generosity of the pension system for those born after 1962, by increasing the maximum pensionable income and introducing a much-improved minimum pension. But instead the pensionable age rose to 65, with the first increase coming into force in 2013.

“This reform fell short of what could have been expected after a decade of experts’  analysis and an unending series of reports. First of all, it looked at just future retirees and ignored the fact that current pension provision is not serving the needs of everyone today. In fact the poverty rate among our pensioners in the year when that reform took place stood at 24%,” Muscat said.

“At the same time, the reform left us with a system which would face ever-mounting deficits. By 2050, pension spending as a proportion of our national product was meant to rise to over 15% from 8.6% today. As a result, the European Commission and credit rating agencies are always warning us about the long term cost of our pension provision and urging us to take steps to correct this.”

The Finance Ministry is studying the option of home equity release: most of the pensioners are home-owners and have invested most of their incomes to acquire this substantial but very illiquid asset.

David Curmi, president of the Malta Chamber of Commerce, said the government should focus on encouraging “workplace savings”, encouraging workers to start saving from their first jobs, without making it mandatory.

“It should be about encouraging a culture of savings, invest in financial education and remove those regulations that hinder small savings,” he said.