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Malta considers auto-enrolment reform

The Maltese government should introduce auto-enrolment if its latest attempt to boost private pension saving fails, a comprehensive report on the country’s pension system has urged.

The government should also conduct strategic reviews of the pension system every five years, with the parameters of each report set by a standalone commission, according to a paper by the Pensions Strategy Group.

The group set out to review the Maltese system by taking into account the “solid foundation” of the state pension while recognising it cannot serve as the sole source of income on retirement.

The report, prepared for the Ministry for the Family and Social Solidarity, suggested that if the introduction of a voluntary third pension – an individual savings account administered by the banking sector – failed to attract sufficient interest despite tax incentives, then employees should be auto-enrolled.

The current system will offer a tax rebate on annual contributions up to €1,000, which it was hoped would offer an average replacement rate of 9% after 40 years of contribution.

The pension strategy group’s report said that, while 2015 was too early to assess how successful the rollout of the new scheme had been, by 2020, the commission should conduct an “in-depth” review of its success.

“In the event the Review shows the [Supporting Retirement Scheme] would not have delivered as planned,” the paper says, “the Review should give strategic consideration to recommending a mandatory opt-in, voluntary opt-out scheme, where the employer is responsible for managing the administration aspects of the scheme, and the government is responsible for the design of the fiscal incentive framework.”

Malta has previously been criticised by the European Commission for failing to raise its statutory retirement age to compensate for increasing longevity.

In country-specific reform proposals published last year, the European executive noted: “The statutory retirement age remains disconnected from life expectancy, which poses a problem for the long-term sustainability and adequacy of pensions.”

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