12 November 2003

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2007: a pensions odyssey

By Kurt Sansone
The decision taken last weekend by the social partners and Finance Minister John Dalli to postpone pension and welfare reform by another six months is a clear indication that the major stakeholders are not considering the pensions problem to be an urgent one.
Indeed, the first generation of post war baby boomers will reach pensionable age in 2007 and this may give us a false sense of security in terms of urgency.
An analysis of the Maltese population according to age groups shows that the post-war baby boom took off in 1946 and continued until 1950. Today these people are aged between 53 and 57. In the 1995 census, when this same group of individuals were 8 years younger, it was calculated that they totalled 30,729.
Although today the amount of people would have dropped because of death related causes the age group still represents the largest segment ever to reach pensionable age at one go.
The situation does not get any better beyond that age group. From 1951 to 1960 the number of births maintained an all time high. The 1995 census revealed that the number of people falling within that category was 58,236. Today, these people are aged between 43 and 52.
This means that in a span of between four to 18 years time Malta will progressively be facing an increasing pensionable population.
Lower birth rate
The anticipated pensions boom will have an impact on the present working population as well as the upcoming generations. And the picture is not a rosy one. More people will be reaching pensionable age than people entering the workforce.
In the 1995 census today’s 12 year olds fell within the 0-4 age-bracket. The total amount of children was calculated at 25,780, which represented the lowest birth rate in the previous 25 years.
The current birth rates do not augur too well either. Statistics released by the National Office of Statistics three years ago show that between 1998 and 2000, a total of 13,023 births were registered.
Falling birth rates coupled with an ageing population that will grow exponentially for the next 20 years will put a strain on public finances.
Fewer people will be employed in productive work and with people living longer lives the stage is set for a financial fiasco. In very simple words this means more taxes will be required to finance the pensions gap.
Retiring at 65
Raising the retirement age to 65 for both men and women would help mitigate the problem. And if government goes ahead with its intention to raise the retirement age to 65 by 2015 it could actually delay the younger generations of the post war baby boomers from reaching pensionable age at one go.
Another way to mitigate the problem is to increase the work force by encouraging more women to work productively. This would require family-friendly measures such as flexi-time, child care centres and other incentives to make it plausible for women to continue working.
The state pension system is financed from current workers’ taxes as there is no pension fund in place. In short, the NI contribution each one of us pays does not finance our future pension, as it should technically do.
Within this context private pensions may play an important role to ensure additional income for retirees but these would need to be regulated to avoid people losing out on their savings if funds crash because of mismanagement.
Unless the future of pensions is not to be undermined, solutions have to be implemented sooner then later. People need to have the time to digest the changes. And given government’s cut off date for raising the pensionable age is merely 12 years down the line taking an early decision is important.
Preferably, solutions should be implemented with the consensus of all social partners but it would be a mistake if the search for a consensus is used as an excuse to delay taking the decisions that matter.
kurt@maltamag.com



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