Pension reform needs to include
private funding - Dalli
- adjustments to retirement age, payable pension and contributions
in future pension changes
By Matthew Vella
The seminar on Promoting Adequate and Sustainable Pensions yesterday
closed off with speeches by the two ministers spearheading the yet-to-happen
pension reform. There were brave words from both Social Minister Lawrence
Gonzi, whose ministry organised the seminar in conjunction with the
European Commission, and Finance Minister John Dalli, both ministers
being tagged as future runners for the PNs top job once Eddie
Fenech Adami takes his leave.
The air of co-operation and news of a report containing proposals on
pension reform certainly filled the lull that had previously occupied
the hampered progress of the Welfare Commission, set up four years ago
by Gonzi to address national welfare issues. Last Saturday, a report
with proposals for a wide-ranging reform in pensions and the national
health system was presented to the social partners of the commission
Expenditure on pensions in Malta 2002 increased to 4.8 per cent of GDP,
still well below to the EU average of 12.7 per cent (as at 1999). Projections
see the amount of workers per pensioner decreasing from five to three
by the year 2025.
Gonzi yesterday said that within the next three weeks government and
the social partners will be presenting their official reaction to the
proposals. "Obviously, there will be areas of agreement as well
as areas of disagreement. There will be points that will have to be
substantiated by actuarial exercises and areas that will not need to
be delved into. Generally speaking, it will be an exercise that will
provide us with a blueprint of what needs to be done."
Whilst Gonzi believes that pension reform right now is "exciting,"
as the Nationalist government prepares to pioneer one of the most vast-ranging
social reforms in years, "making life easier for future generations",
Dallis speech, in pointedly read-out fashion, splashed out the
indicators of what the public can expect for the future:
"The solutions have to be a hybrid between the present pay-as-you-go
system and a funded scheme, with government maintaining a pay-as-you-go
safety net covering all Maltese citizens, funded by compulsory contributions."
Dalli said key parameters of the present system would have to be adjusted
to render the system "sensible and viable":
"These key parameters are the retirement age, in terms of the length
of working life determining the amount of contributions, and the length
of pensionable age, and therefore the level of the pension liability."
Another key parameter was the calculation of actual pension paid annually,
determined by the income taken into account, the level of income and
contribution cap, and the number of years used to work out the average
on which the income base is then determined. Dalli also gave indications
in his speech that as a result of these adjustments, the level of contribution
by workers will also be one of the variable adjustments in pension reform.
He has ruled out the "ideally" favourable proposal that pension
structures should be based on a funded concept. This option is extremely
costly, he maintains, resulting in a diversion of revenue through social
security contributions away from the government budget, at the same
time retaining the full burden of pension outflow.
Dalli said that in addition to the government safety net, there should
also be funded private pensions, which could be written as service pensions
by employers in conjunction with their employees, and private pensions
drawn by individuals in their personal capacity.
"If this is implemented, we will be turning the concept of the
1979 pensions regime on its head. We will be doing away with the principle
that the national insurance pensions should be the maximum if not only
pension that one could have. We will be facilitating the practice of
individuals to enjoy multi-tier pension flows that will accumulate into
a good income."
Both Dalli and Gonzi said the government is fully committed to retain
the social safety net, a "commitment that translates itself into
a commitment to make the system financially sustainable for the benefit
of our future generations", Gonzi said.
"Our reform has to prevent poverty and social exclusion, make sure
everyone has the possibility to maintain ones living standards
after retirement, and promote solidarity both within and between generations
by making sure that the system adopted are built on principles of social