Indexation system proposed to strengthen pensions’ purchasing power

The Alliance of Pensioners’ Organisations has proposed an indexation system that would strengthen the purchasing power of pensioners. The system, it was argued, would ensure that the pensions reflect the basic costs required to escape the poverty trap and ensure that the elderly live their life in dignity.

Alliance president Carmel Mallia argued that the pensioners’ biggest problem was the explosion in prices of basic items such as meat, fish, vegetables, fruit, house maintenance, doctors’ visits, IT and rent.

“It’s a fact that vulnerable people such as the elderly are not reaping the benefits of economic growth – on the contrary, they are suffering more. A good indexation system of pensions is the best tool to safeguard pensioners’ purchasing power,” Mallia said.

While Budget 2016 increased the minimum pension to €130 a week, with an additional €18 allowance, the measure wasn’t applied to married couples on one pension. Their total income had gone up to €159 a week, compared to a single’s €147 weekly income.

According to the pensioners, the average income for a couple should stand at €221 a week. Budget 2017 will implement a €4 weekly increase, which the pensioners describe as miserly. The budgetary measure will target some 2,500 people who are on minimum pensions.

Finance Minister Edward Scicluna also announced that income tax on contributory retirement pensions – which reach up to an annual maximum income of €13,000 – will be entirely abolished. Elderly people on treasury pensions, service pensions and private pensions will not be taxed for their first €13,000.

While praising the measure, the alliance noted that there were no concrete proposals for some 75,000 current pensioners born before 31 December, 1961.

The alliance argued that the pensions reform – which is in its first year of implementation – has created an injustice. As a result of the reform, two categories of maximum pensionable incomes were created – one for those born before December 1961 and those who were born after January 1962. As a result of these categories, those born before December 1961 will receive €230 whilst those born after January 1962 will receive €283.

“In between five to 10 years’ time, this change will be the reason why thousands of pensioners will be capriciously brought closer to the poverty line,” Mallia said.

The alliance described the guaranteed national minimum pension as a positive step, albeit it will negatively impact the maximum pensionable income. This year, the highest pensionable rate increased by €1.17 a week; on the other hand the minimum pension for a married person went up by €3.80 whilst that of a single person increased by €11.61.

“This difference nullifies the principle of earnings-related benefit because those who paid a small contribution are receiving more than those who paid a higher rate of national insurance,” Mallia explained.

“The gap between the minimum and maximum pensions is growing narrower.”

The British service pension remains another bone of contention between the pensioners and the government. Whilst service pensioners continue to receive the €200 a year pension adjustment, this does not resolve the injustice that was created years ago – 37 years to be precise. Ex-servicemen argue that they should be entitled to the Maltese two-thirds pension – introduced in 1979 – along with their British service pension.

“It’s a pity that whilst we’re celebrating 60 years since the introduction of contributory social benefits in Malta, the alliance is talking about shortcomings that hinder the progress of state pensions,” Mallia said.