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James Debono
Anyone hoping Labour’s vote against the government’s pension reform is a sure guarantee it would revert retirement from 65 back to 61 if elected in power, had better not count their chickens before they hatch.
Despite the impression given by Labour’s opposition, deputy leader Charles Mangion appears unsure about what a Labour government will do if the retirement age is increased to 65, as proposed in the reforms for those born after 1962.
Asked whether a new Labour government would revert the retirement age back to 61, Mangion replied that this is a “hypothetical question”.
But when further pressed, the deputy leader said Labour would “reconsider” this particular aspect of the reform upon being elected.
The crucial retirement age is the main thrust of the present reforms, which means any hint by Labour at reverting the retirement age can send mixed messages to credit rating agencies which have been insisting on the urgency of pension reforms.
In July economist Edward Scicluna said it was unthinkable to postpone pension reform further, primarily because of the credibility of country’s public finances. “The EU, the IMF and the rating agencies are all very keen to see whether the government would credibly start a public finance reform, which includes pensions, health, tertiary education and social security.”
Writing in MaltaToday the chairman of the Pensions Working Group David Spiteri Gingell also makes it very clear that all evidence shows that any deferment in pension reform is not advisable. “It will ultimately mean that the reforms will still need to be carried out – but with two major caveats: the timeframe will be far shorter and the reforms will be far more radical than those being considered.”
The second reading of the pension bill was approved by parliament last Wednesday but the reform could be short-lived if Labour wins the next election.
Charles Mangion insists Labour would reconsider the two main elements of the new bill: the gradual increase in the retirement age from 61 to 65 and the calculation of pensions of persons born after 1962 on the basis of forty years of national insurance contributions.
Unsurprisingly, Labour is not objecting to the sugary part of the bill related to the capping of pensions, at present limited at a miserable Lm4,500.
The bill caps the pensions of those born before 1951 at Lm7,500, and of those born between 1962 and 1961 at Lm9,000. After 2014, pensions will have to correspond to 70 per cent of the average wage.
Mangion said Labour would stick to the roadmap outlined in its four-page policy paper on pension reform, which aims at a holistic reform of the health and social security system.
Labour wants yet another consultation period in three years’ time and to enact a reform after 2011. Its pamphlet reads: “no crisis appears likely to rise before the years 2025 and 2030”, running counter to strong indications that the ageing population will put more pressure on public finances at a time when the number on employees is on the decline, and baby boomers are retiring.
Mangion insisted the country still has a surplus from national insurance contributions if contributory pensions are taken in isolation. “One can only speak of unsustainability if the health and social security system are taken as a whole. That is why we are insisting on a holistic rather than a piecemeal reform.”
Senior economists agree that delaying reform by six years would not affect the current and short-term public finances. Economist Edward Scicluna said last July that delaying the reform by six years would not affect “one iota” of the current and short-term future public finances.
But he also warned that if reform is postponed by as little as four years, a future pension reform would only be able to exempt those who are over 58 years. Contrary to the economic advice given by the IMF, the government has exempted from the pension reform all those employees who are older than 54 years.
The reform presented by the government stops short of introducing a mandatory second pillar – a separate fund in which employees and employers can save part of their income which would eventually supplement the national two-thirds pension.
The proposed law only goes as far as creating the legal mechanism through which such a fund can be set up.
The Pensions Working Group had recommended paving the way for the second pillar before 2010 by ‘carving out’ a percentage from present NI contributions for this purpose. But according to David Spiteri Gingell, the mandatory second pillar pension has to be introduced by not later than 2010.
jdebono@mediatoday.com.mt
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