Retirement: informed decisions that count

Raetirement concerns logically start to cross our minds the nearer we get to our retirement age. It is surely rare for a new and young entrant to the labour market to be thinking about his retirement pension and his well-being at the end of his career. However pension and retirement systems are constantly in evolution and it may never be too early to consider one’s retirement plans. Whether one is in employment or in self-employment and business, retirement planning becomes more relevant as one nears retirement age.

In Malta we have grown accustomed to our system of two-thirds pension as the main safety net for the retired. It was introduced in 1979 by the Labour administration to guarantee two-thirds of one’s salary (averaged out) up to a ceiling or capping. It is a mandatory and contributory pension based on national insurance contributions that is also subjected to a ceiling or capping.

Those who unfortunately fail to outlive their pensionable age, do not receive any benefit. Some of us supplemented this pension by investing in retirement savings plans, life insurances and other investments; all plans resembling pensions but not being so. Such schemes would yield a lump sum or annuity payments at some point in time.

However around the year 2007 the pension reform was on the agenda as sustainability of pensions was a growing concern. The reform remained mostly on paper, except for some more taxing burdens imposed on young national insurance contributors and a higher retirement age. The reform identified our 1979 system as the first pillar pension and suggested a mandatory second pillar pension and also a voluntary third pillar pension.

The present administration has been unwilling to force mandatory pension plans upon the population active in the labour market and has instead been working on the infrastructure, legal and otherwise, required for the evolvement of voluntary pension plans – practically the third pillar pension system. Finance Minister Edward Scicluna has in fact recently announced legislative changes that will grant a tax credit intended to encourage people to invest voluntarily in private pension plans. This is not the only way in which participation may be encouraged, albeit an important first step by the government. Opt-in and opt-out workplace schemes could eventually be considered; amongst other initiatives.

The work being done by the government should lead to the availability on our market of private pension plans that will be specifically designed to supplement our mandatory first pillar pension. This is taking place within a framework whereby the State is also, in part, supporting those who opt for such long term pension planning.

One is yet to monitor closely the developments that will take place and the products and systems that will eventually emerge. However, it is surely the right time for our country to be pushing such mechanisms forward.

Moreover the avoidance of mandatory pension systems is the right way forward as Maltese will have the opportunity to choose whether or not they want to spare part of their income for the future or otherwise. The first pillar pension remains a safety net in place to safeguard pensioners. It is also to be noted that the government has already reviewed and improved the situation for low income pensioners. This is a duty the State has to ensure that no one falls below the safety net.

However there are also several persons who already pay the maximum national insurance contribution and qualify for the maximum first pillar pension along with several others who earn a median salary and are putting aside some savings for rainy days. It is therefore a positive development that one may soon be investing in one’s own third pillar pension and it is hoped that all participants of the labour market make an informed decision about their intended retirement lifestyle.

Dr Aaron Farrugia is a Labour candidate on the first electoral district