Opposition warns of 'time bomb' unless second pillar pensions are introduced

The opposition today warned that the voluntary private pension scheme proposed by government was not enough to ensure adequate pensions for all, adding that if no action was taken the country would face a “time bomb.”

As Parliament started discussing a bill which would see the introduction of tax benefits for private pension schemes, the opposition argued that government was "putting the cart before the horse" by introducing third pillar pensions before having the second pillar pensions in place.

Opposition MP Clyde Puli reiterated that the pension reform was kicked off by previous PN administrations and the opposition would be backing the bill.

However, he said “the third pillar alone will not guarantee the adequacy of pensions.”

Puli said that if the pension reform is not carried out, “present and future generations will pay a heavy price.”

He added that government’s decision to ignore the second pillar pension was “surprising,” especially coming from a social-democrat party.

Underlining the difference between sustainability and adequacy, Puli said that the lower the expense on pensions the better for government, however he insisted that the most important aspect was whether a pension was enough for an adequate quality of life.

On his part, former finance minister Tonio Fenech said the opposition was concerned with the proposed private pension scheme because this would not be enough to close the pension gap.

He explained that before the 2007 pension reform, the average replacement rate, or the percentage of a pension in relation to the average wage, was predicted to stand at 18% in 50 years time. But following the reform, which included a gradual increase in the pensionable age, the rate increased to 45%.

 “We can only guarantee that today’s youth enjoy at least the same pensions which their grandparents receive today, which must also be improved as promised by this government, we must address a 10% or 15% gap, which as proposed by the 2010 Pensions Working Group, can only be closed by a second pillar pension.”

Earlier, social solidarity minister Michael Farrugia explained that persons who invest in a private pension scheme would receive a tax rebate of 15% up to a maximum of €150.

The minister said this would encourage people to invest and guarantee “an adequate pension once they retire.”

“This bill is aimed at improving people’s quality of life, while they are still working and even once they retire,”Farrugia said.

In his address, Fenech said that the third pillar pension would not close the gap because it is intended to allow people who are better off to enjoy a better pension over and above the first and second pillar pensions.

He explained that not everybody afforded a private pension scheme, meaning that unless a second pillar pension, or a second obligatory partly funded by employers was introduced, pensions would not reach 60% of the national average wage.

“The bill ignores the proposals put forward by the 2010 Pensions Working Group, which was endorsed by all stakeholders,” Fenech said, adding that government had failed to present a holistic strategy and hold a consultation process.

“If the proposed third pillar pensions is intended to replace the second pillar, which is obligatory, the incentives are not enough to achieve the same results, and I fear the take up rate will be low.”

Fenech said that government had made an electoral promise to increase the minimum national pension to 60% of the average national wage, however this would not be achieved unless a second pillar pension is introduced.

He also criticised government for only including one breadwinner within a household in the tax rebate scheme and not extending the scheme to private pensions paid for by companies.

Fenech called on government to initiate talks on the second pillar pensions immediately, insisting that the opposition is more than willing to discuss the matter and agree on a gradual introduction of second pillar pensions.

The introduction of the obligatory second pillar pension, put on hold by the previous government during the 2007 financial crisis, could be bolstered by the funds government is expected to rake in from the controversial golden citizenship scheme.

“The PN believes the part of the income derived from the citizenship scheme should be used to create a fund to ease the burden on workers and companies,” Fenech said.