08 March 2006

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Business Today

Employers against mandatory second pillar pension

Karl Schembri

The Malta Employers Association (MEA) believes the second pillar pension scheme should be left optional once the government decides on its workings.
Giving his association’s reactions to the pensions announcement made by the prime minister last week, MEA Director General Joe Farrugia told Business Today that persons who may have different schemes should not be forced into taking the second pillar pension.
Lawrence Gonzi announced last week that the second pillar pension scheme is bound to be mandatory but the government was still working out the details of the scheme. Gonzi also said this was not the right time for workers and employers to raise the burden of additional contributions.
Calling on the government to “study the forms that the second pillar scheme can take in final detail before making a commitment,” Farrugia said many people have life insurance schemes which were serving the same purpose.
“The extent of home and property ownership in Malta can also be factored in when considering the criteria for making it mandatory,” Farrugia said. “After all, the objective is not to make the second pillar mandatory through forced savings, but to ensure that citizens live in relative comfort during their retirement. Persons who may have alternative arrangements to support themselves during retirement should not be forced to contribute to a second pillar pension.”
On the retirement age, MEA has always agreed that retaining the current retiring age makes the prevailing PAYG pension scheme unsustainable, Farrugia said.
“The association had proposed raising the minimum contributions for pension eligibility to 40 years, as expressed by government. However, our proposals focused more on the principle of flexible retirement, based on a basic retirement age of 61 and a minimum contributory period of 40 years, with incentives to remain working beyond this age. Since a greater percentage of the workforce today continues tertiary education, and therefore joins the labour force at a later age, the 40 year contribution would still imply that the retirement age will increase for a good section for the labour force. On the other hand, the government has preferred raising the maximum pensionable income, increasing the retirement age but only providing the option for an earlier retirement with a penalty.”
Farrugia says there is no question about the prime minister’s decision that this was not the right time to impose new contributions.
“There is no question, given the fragile state of the economy at the moment, that increasing labour costs will have a negative impact on competitiveness which may place many jobs at risk,” Farrugia said. “This is why it is essential to anticipate the need for reform. If the country had continued procrastinating on this issue, the situation would have reached a stage where it would not have been possible to introduce the reforms gradually and with the financial impact on employers and employees dispersed over a number of years.”


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