Malta dismisses IMF warning on pension reforms

MALTA - The International Monetary Fund has urged the Maltese government not to delay plans for the introduction of second pillar pensions, amid concerns the Republic will be unable to sustain a heavily-burdened social security system.

Despite the IMF's grim forebodings, published in an economic review earlier this month, there is acknowledgement the island's right-wing administration is addressing the matter, starting with reforms to the PAYG system which were introduced in 2006.

However, the report notes the government has ‘postponed' the implementation of second pillar pensions - a claim the Maltese government denies.

"The establishment of the second pillar is not delayed," says Dolores Cristina, minister of family and social solidarity, under whose remit pension reform falls.

"Government has constantly reiterated its belief that having a second pillar pension system in place would be very beneficial to ensure adequate pensions. However, it has always been made clear that it may not be wise to introduce this system at this moment in time due to the increase of new burdens on both the employer and the employee.

She continued: "The Pensions Working Group had recommended this cautious approach when it stated that the second pillar should not be introduced later than 2010. In the November 2006, through amendments to the Social Security Act, the government put in place the legal provisions to enable the introduction of the second pillar pension as and when deemed fit."

Cristina suggests the introduction of second pillar pensions is dependent on the island's economic situation.

"This government has recognised the principle of continuous change and updating, a principle which is also enshrined in the changes made to the Social Security Act in November 2006. Government is therefore legally bound to carry out periodic five-yearly strategic reviews of the pension system so that changes are introduced to reflect evolving circumstances."

She adds the law now demands the first review be carried out and presented to Parliament no later than December 31 2010, and this will undoubtedly include consideration of the second pillar pension.

Details of the IMF Article IV report, on Malta's entry to the Economic Monetary Union on January 1 2008, noted government policy recommendations are the retirement age be gradually increased to 65 from 2015, along with the increase in the regular contribution period to the State pension scheme from 30 to 40 years as well but added the introduction of the second pension pillar "has been postponed".

Publication of this IMF economic report comes ahead of developments in Malta as the prime minister, Lawrence Gonzi, is soon expected to set a date for the next general election. Early polls give conflicting results on which party will win the next election - the country is usually divided 50-50 for the existing Nationalist Party administration and the Malta Labour Party.

Marie-Louise Coleiro-Preca, the Labour Party spokesperson for the family and social solidarity, also stated the Party's strategy on pensions reform has not changed since a statement released last year. The statement in question makes no mention of second pillar pensions, though it stresses the Party's ideology of safeguarding pensions for all in a framework of social justice.

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