A pensions working group set up by Malta’s government has recommended the immediate creation of an additional mandatory scheme to complement the present ‘pay as you go’ pension, which is widely agreed to be unsustainable. However, employers say an additional pension system would undermine their competitiveness and suggest instead that the best solution would be to raise employment levels. Unions say workers would struggle to pay additional pension contributions.
Background
There seems to be a consensus that Malta’s present ‘pay as you go’ pension system is unsustainable. The root causes of this unsustainability are the relatively low employment rate (56% of the population compared to the average of 64.2% for the EU27 in 2010), and the ageing Maltese population. According to statistics, in 2009 there was one person over the age of 64 to every four of working age (between 15 and 64 years old). The European Commission and the International Monetary Fund (IMF) have been putting pressure on the Maltese government to address this issue.
Consequently, a Pensions Working Group (PWG) was set up to suggest measures that would make the pension system sustainable. One of the PWG’s 45 recommendations was the introduction of a mandatory ‘second pillar’ to support the current pension system. It stressed that this would need to be implemented immediately, in order to avoid the average pension becoming inadequate.
Social partner reactions
Employers’ associations reacted by saying that a mandatory second pension pillar might undermine the competitiveness of the Maltese economy. The Malta Employers’ Association (MEA) suggested instead that the first pillar should be reinforced by a higher activity rate in the labour market. It says that this higher activity rate can be achieved by:
- more flexibility in the workplace;
- more use of teleworking;
- more state support to achieve a good work-life balance.
The MEA feels these policies might go a long way in encouraging Maltese women to get jobs, as their current labour market participation rate is the lowest among the EU Member States. The MEA also said the objectives outlined for the second pillar could be obtained by a voluntary third pillar. Its voluntary nature and its flexibility would make workers’ investments in it commensurate with their income and financial assets. Fiscal incentives would make the third pillar more attractive and viable, while the first pillar would still serve as safety net.
Other employer organisations have tended to agree with this. The Malta Chamber of Commerce, Enterprise and Industry in its statement, endorsed by the Malta Hotels and Restaurant Association (MHRA) and the Malta Institute of Management (MIM), made the same recommendations. MCCEI recommended a strict regulatory and monitoring authority which should be in a position to question the investment strategy for the proposed third pillar and provide effective communication to contributors.
Forum Unions Maltin (ForUM), a loose confederation of 11 unions mostly representing professional workers, agreed on the need for reforms to make the pension system more sustainable, but criticised the proposal of a mandatory second pillar at a time when the continued increase in the cost of living is reducing people’s purchasing power. It said a mandatory contribution to a second pillar would make it more difficult for workers to cope with the present dire economic conditions. No official statement was forthcoming from the two large Maltese trade unions, the General Workers Union (GWU) and the Union Haddiema Maghqudin (UHM). However, they both have long said that they will oppose any reforms imposed without their approval.
Saviour Rizzo, Centre for Labour Studies