Maltese Pension Working Group, EU back introduction of second pillar
MALTA - The European Commission has echoed the Maltese Pensions Working Group's criticisms over the failure of the Maltese government to introduce pension reforms that were "sufficient" to address growing sustainability problems.
In a long-delayed report, published this week and originally written back in December 2010, the Pensions Working Group - an independent body appointed to advise the government on pension reforms - argued that the pension reform introduced back in 2007 was "not enough", and called for the implementation of a mandatory second pillar.
At that time, the Maltese government implemented new measures, which mainly aimed at pushing the legal retirement age to 65 years.
The Pension Working Group therefore called for a mandatory second pillar - consisting of savings made in a private funded pension by individuals and contributions by employers - as well as a third pillar which would provide an individual with a choice to save more for retirement should they wish to.
"The financial and economic crisis, of itself, does not diminish the importance of private pension provision in a well balanced private and state pension framework directed to ensure a quality of life during retirement," the group said in its report.
"All of the stakeholders have converged with the view that there is a need for the design of funded pension that complements a strong first pension to meet this stated aspiration of the adequacy level that would be provided through a multi-pillared pension system approach."
However the stakeholders who took part in the consultation process raised some concerns over the introduction of a second pension pillar, with most arguing that it would increase costs for local and foreign direct investors in the economy.
In addition, there were concerns that the measure might tip the local economy into recession "as a direct consequence of reduced spending" as consumption is deferred by the individual consumers and private sector employers assume the extra cost of contributions.
The European Commission echoed a number of criticisms made by the Pension Working Group.
In a package of recommendations for budgetary measures and economic reforms across the EU published on Wedesday, the Commission said that the efforts made by Malta to reform its pension system were "insufficient" to address the deficit issues.
"Ensuring the long-term sustainability of public finances remains a challenge in view of the projected above-EU-average increase in age-related expenditure in the long run, particularly in the areas of pensions and healthcare," the Commission said in its report.
"The very low participation by older workers and women adds to the scope of the challenge.
"No steps have been taken to accelerate the increase in the retirement age nor to establish a link between the retirement age and life expectancy," it added. "Likewise, no comprehensive active ageing strategy has been developed and the use of early retirement schemes is still common practice.
The Commission went on to say that, although the pension reform prepares for the possible introduction of a second and third pillar, nothing concrete has been done to implement these provisions.
In addition, Brussels deplored the fact that the Maltese government failed to announce its position on the proposals for pension reform submitted by an independent Pensions Working Group in December 2010.
At the time, the Pension Working Group drew up a list of 45 recommendations for the government to reform the pension system, among which, it called for the introduction of a mandatory plan, funded by employers and employees.