Pension Reality Knocks

The Malta Independent on Sunday 

Now that we are past the electoral exigencies that forced government to postpone the tackling of our domestic problems, reality starts knocking. In the run-up to the election we were made to believe that all problems will be solved by the mere endorsement of the EU membership project and the mere show of no-confidence in Alfred Sant perikoluz.

Reality is painfully different. And this week the Finance Minister came in with a rare dose of factuality. A rare dose that he normally discovers in the first few months after an election victory as he did in the budget speech for 1999 where he admitted that the structural fiscal deficit had been long in coming and was not at all manufactured by Labour during 1996 – 1998 as was premised in the 1998 election campaign.

Speaking about the evident problem which is building up in our unfunded pension system the Minister admitted that “we have wasted five years. Nothing much has happened, not even behind the scenes. The commission (National Welfare Reform Commission) tried to do something but the interest groups stultified the process because they did not find a national basis to go forward”

“we have wasted five years. Nothing much has happened, not even behind the scenes. The commission (National Welfare Reform Commission) tried to do something but the interest groups stultified the process because they did not find a national basis to go forward”

Pity that such criticism finds no place in the election campaign discourse where we are repeatedly assured that everything is on course and well under control. Now that the election is over we are unashamedly told that unpopular measures are necessary at this stage.

The pensions problems is not one which can easily be pinned on any government. It is a problem which is being created by the evolution of demographics over which governments have little or no control. If people are living longer and drawing their pension rights for a much longer period than was the case when the pay-as-you-go pension system was created in 1956, it is not any government’s fault or merit and certainly not within its control.

The problem is a factual one that belongs to us all. Unless it is addressed resolutely and determinedly we will be storing big problems for those who are 15 or more years away from their pension. They cannot in any way put their mind at rest that the pension they will draw will guarantee a minimum accepted standard of living comparable to what they are used to during their working life.

The future is generally uncertain. But when it comes to demographics the future can be charted with precision. There is nothing to argue about the expectation that by 2025 we will have more than 100,000 persons entitled to a state pension and that each person could be expected to continue drawing such pension for an average of 20 years after reaching pensionable age. This is a stress that our pay-as-you-go pension system cannot bear unless the maximum state pension is kept at an artificially low level which would make a mockery of the two-thirds pension concept.

Solutions are quite easy to identify but hard to implement. Solutions must necessarily involve a mix of the following elements. Increase of the pensionable age in order to reduce the period of benefits and increase the period of contributions; increase in the economic activity by drawing to the labour market more female participation to generate economic growth and increase contributions by the active workforce; fiscal incentives for public or private supplementary contributory pension schemes.

Given these facts I would be the last one to criticize the Minister for tackling the pension problem with determination and resolution necessary. Solutions are by their very nature of long term tenure as they cannot affect those who are within a few years from their pension qualifications given that they do not have the necessary term to build up savings for supplementary entitlements.

So it is certainly not too soon to address the pension issue. Criticism must necessarily be as to why we have wasted five years. Why we have wasted all these years considering the same incumbent has now been in charge at the Ministry of Finance for more than 11 years.

“Why we have wasted all these years considering the same incumbent has now been in charge at the Ministry of Finance for more than 11 years.”

One could argue that the Opposition did not offer its co-operation to participate in the formulation of a national strategy for the pension problem. No matter how desirable such co-operation was and still is, government cannot just seek excuses for doing nothing in the non-participatory stand taken by the Opposition. In the EU issue government did not let the Opposition’s outright resistance to the project, not mere non-co-operation, stand in the way for achieving its objectives.

So the inertia about addressing the pension’s problem must be laid squarely at the government’s door. The Minister’s clear reference to having wasted five years without nothing much happening, not even behind the scenes, can only be interpreted as intra-ministerial feuds or piques with Minister Dalli subtly criticising his main contender for the party leadership throne, Min. Gonzi. In his role as Minister for Social Services, the latter had equal responsibility for addressing the pensions problems and was the Minister responsible for the works of the National Commission.

For the future I think that we must now proceed with practical solutions. We have all the studies we need. We have all the case history of many other countries who are facing similar problems. We need not re-invent the wheel. Just be ready to call a spade a spade and do what we have to today before we suffer more pain tomorrow.

The Opposition has every interest to be part of the solution. Any party that aspires to be in government 10 years hence has a vested interest in ensuring that stitch in time measures, unpopular as they may be, are taken now to avoid a disaster under its eventual leadership when in fact the problem was fabricated during the tenure of its predecessors.

So I think the opposition reaction to Min Dalli’s untypical dose of factual reality of this week should be yes, carry on Minister it is certainly not too soon, just hoping it is indeed not too late.