MALTA - The Maltese Pensions Working Group - an independent body appointed to advise the government on pension reform - expects the public pension system to record a deficit of around 5.8% of GDP by 2060 if new regulations are not implemented soon.
In a report published in December last year, the pension working group called for significant changes and immediate reforms.
Malta's pension plan is based on a pay as you go system that prioritises "inter-generation solidarity". Like other European countries that have adopted this system, the Maltese pension plan is now facing a imposing deficit, mainly due to an ageing population and a low birth rate.
According to the working group, four people in employment are currently financing one pensioner's plan. The group believes this number will fall drastically by 2060 and expects 1.5 people in employment to pay for each pensioner by then.
The working group has therefore drawn up a list of 45 recommendations for the government to reform the pension system.
Among other suggestions, it has called for the introduction of a mandatory plan, funded by employers and employees.
David Spiteri Gingell, former chairman of the working group, told IPE: "In a situation where we are forcing people to contribute to a pension scheme, we are recommending that a default pension, based on life-cycle principle, should be introduced.
"This system would come to complement the public pension system, which no longer has the capacity to meet pensioners' needs."
However, this option was removed from the government's plans earlier this year, and the finance minister went on record saying that mandatory second-pillar pensions would not be introduced this year.
In a previous report published in 2005, the Pension Working Group also recommended the implementation of a third pillar.
Spiteri Gingell said: "This plan would be optional, but the government should incentivise it. That way, we would get people to save for 25 or 30 years to move forward this expenditure to the future."
The public has been invited to a consultation on pensions and has until 31 May to respond.
Matthew Brincat, senior associate within the pension and insurance group at Ganado Associates, said: "The government's plans are not to phase out the current system but to introduce new schemes that will come to complement the existing one.
"We still don't know what measure will be taken or when they will be launched. However, a restructuring plan clearly needs to be set up within the next few years."
The Pension Working Group will present another report to the government, probably after the summer, once the consultation period ends.
This new report will take into account the population's views on the introduction of the pension system.
Spiteri Gingell said: "There is nothing to prove that the recommendations published in the report will be implemented. Nonetheless, we have to set up a new pension system step by step. If we do it abruptly, the society will not accept the changes.
"The changes are also cultural. We have to build up a new culture and make people understand they can no longer depend on what the state will do for them. They now need to finance their own future."