PM rules out ‘unaffordable’ second pillar pension schemes

Prime Minister Joseph Muscat rules out increases in retirement age and social security contributions, says second pillar pensions would produce adverse effect on low-income earners

Malta's retirement age will not increase beyond 65, Prime Minister Joseph Muscat has insisted.
Malta's retirement age will not increase beyond 65, Prime Minister Joseph Muscat has insisted.

Prime Minister Joseph Muscat has this morning delivered another crushing blow to the prospect of Malta introducing second pillar pension schemes, arguing that such a measure would produce adverse effects on families, rather than ensuring a sustainable pension scheme.

The proposed introduction of second pillar schemes would see employers and employees legally obliged by the government to pay a percentage of their monthly income into a personal pension account.

The second pillar pension scheme is central to the Opposition’s proposals aimed at addressing the pensions’ sustainability, with its deputy leader, Mario de Marco, describing it as “more equitable with stronger sustainability.”

However, the proposal has proved to be a sore point between the government and the Opposition, with Joseph Muscat insisting that such a reform would not be considered for the time being.

“The government disagrees with this measure as thousands of families would not afford to cut back on their expenses and dedicate another significant part of their income towards a pension fund.”

“If introduced, such families would suffer a severe blow and would not be able to cope,” the prime minister explained this morning while speaking during a telephone interview on One.

Currently, Malta has a pay-as-you-go pension whereby a person receives two thirds of their final salary upon retirement. The percentage of the general revenue gets allocated according to the pensions’ payments. But, coupled with a drastic increase in the elderly population in Malta, the country's drop in labour power has seen the sustainability of the pension system become a true electoral test for the Labour government.

The last major amendments to Malta’s pension scheme came in 2006, which paved the way for the retirement age to increase to 65.

While describing the amendments as unsatisfactory and as falling short of expectations, Muscat was quick to dispel any concerns that this government would follow suit and reassured that there would not be any increases in the retirement age or social security contributions.

“There are a lot of misnomers in the current system. Under the two-thirds pension system, the people are not receiving the two thirds, even if they do not exceed the €21,000 income threshold,” the prime minister held.

Consequently, pensioners are getting the short end of the stick and are at risk of poverty, Muscat explained.

The government has moved directly to the third pillar pensions, making it possible for people to voluntarily take up a private pension to top up their state pension. Another promise from Labour’s electoral manifesto was for the national minimum pension to amount 60% of the national average wage, while furthermore, Muscat has insisted that the government will work to address the long-term sustainability of the current system by introducing new measures to increase Malta’s workforce.

Communists back current pension system

Echoing Muscat, the Communist Party of Malta supported the government’s plan to support the current pay-as-you-go state pension system, arguing that this is the best option to ensure the pensions’ sustainability and security.

“Conversely, the second pillar scheme does not guarantee universality, adequacy and sustainability. Workers with low income and precarious jobs will be the first to bear the brunt under the second pillar system,” the Communist Party held.

In addition, the Communist Party held that the national minimum pension income is not adequate for a person to live decently, and held that 22% of pensioners are at risk of poverty.