Maltastar
We have been having a bombardment of
rhetoric about the looming pension crisis. We are told that as the population
ages the funding of pension obligation on a pay as you go system will get
unmanageable as the number of beneficiaries increase, the length of benefit
entitlement stretches as mortality age goes well past the 80’s, and as the
number of those contributing stagnates through reduced birth rates following the
post-war baby boom.
The government has set-up committees to study the situation but it seems that they are stuck in a state of eternal consideration. The Minister of Finance twice lost his temper on the issue. Once when in the budget speech for 2002 he laid down his own version for re-structuring the system. This had led to the resignation of the Chairman of the Pensions committee appointed by the Minister for Social Welfare. Recently soon after the election the Minister said that the situation can’t wait much further and he expected to announce the necessary tough measures by the end of last May. This obviously has not happened.
In this country we have crises of all kinds. We certainly have a crisis in our public finance where the deficit is spinning out of control and the public debt is accumulating at a rate much faster than that of economic growth. We have an environmental crisis that seems beyond our competence to control. We have a social crisis with abuse of alcohol and drugs. We have a crisis with most of our road and energy infrastructure. We have a crisis in the making with our health services when we truly find the cost of operating a monster like the new Tal-Qroqq hospital. Certainly we do not need to add a crisis where we do not really have one.
I am sure this may surprise many as
occasionally I myself have been carried by the chorus of those professing the
arrival of a pension tsunami in admitting the existence of such a crisis. But I
have been having second thoughts.
Many have been suggesting the creation of structures for private pensions to supplement the national insurance pension structure. None has seriously suggested the opting out of the compulsory national insurance system given that the pay as you go nature of such a system would not permit such opting out without risking a collapse and a social crisis.
Those whose annual income exceeds Lm7000 would need such supplementary pensions systems. For these the maximum state pension of Lm4600 would not fit well within the two-thirds ratio on which the pension system was originally built.
At a time when the state can’t cope with its social commitments to those in real need and we are hearing talks of dismantling or downgrading the social structure to roll it back to affordable level, why should the state give fiscal incentives for those earning more than Lm7000 to entice them to provide for supplementary pension schemes to sustain their pension income beyond the maximum national pension?
There is nothing to stop such persons from saving for their pension days. Many have been doing it through savings, investments or life insurance arrangements. They have not had any fiscal rebates for so doing beyond the lower withholding tax applicable for income on such savings or investments.
I maintain that the introduction of other compulsory or fiscally driven supplementary pension schemes could lead to an over-saving situation and could possibly increase the pressure for wage increases risking loss of competitiveness. This will be particularly so if benchmark employers like the government are forced to contribute to such supplementary pension schemes adding to their supplementary labour costs without increasing the take-home pay of their employees.
And there are more arguments against the existence of the supposed pension crisis. Many people in command of an income which would limit them to the maximum state pension short of an effective two-thirds benchmark, are probably home-owners. They have probably serviced a house-loan/mortgage for a long number of years so they will have full equity in their property residence upon or before going on pension.
Is saving through investment in residential real estate any less effective for pension purposes than saving in other forms of assets, whether financial (like bank deposits and bonds) or real (like equities). If anything local experience shows with consistency that real estate has over a long term period been a winner strategy for investors in many cases delivering returns superior to financial or equity investments.
So my question is why should such people be made to save for pension three times – once by paying for the pay as you go national insurance, a second time by servicing a mortgage to have a debt free residential property upon retirement and a third time through fiscal pushing towards supplementary pension schemes?
We have been having a bombardment of
rhetoric about the looming pension crisis. We are told that as the population
ages the funding of pension obligation on a pay as you go system will get
unmanageable as the number of beneficiaries increase, the length of benefit
entitlement stretches as mortality age goes well past the 80’s, and as the
number of those contributing stagnates through reduced birth rates following the
post-war baby boom.The government has set-up committees to study the situation but it seems that they are stuck in a state of eternal consideration. The Minister of Finance twice lost his temper on the issue. Once when in the budget speech for 2002 he laid down his own version for re-structuring the system. This had led to the resignation of the Chairman of the Pensions committee appointed by the Minister for Social Welfare. Recently soon after the election the Minister said that the situation can’t wait much further and he expected to announce the necessary tough measures by the end of last May. This obviously has not happened.
In this country we have crises of all kinds. We certainly have a crisis in our public finance where the deficit is spinning out of control and the public debt is accumulating at a rate much faster than that of economic growth. We have an environmental crisis that seems beyond our competence to control. We have a social crisis with abuse of alcohol and drugs. We have a crisis with most of our road and energy infrastructure. We have a crisis in the making with our health services when we truly find the cost of operating a monster like the new Tal-Qroqq hospital. Certainly we do not need to add a crisis where we do not really have one.
Many have been suggesting the creation of structures for private pensions to supplement the national insurance pension structure. None has seriously suggested the opting out of the compulsory national insurance system given that the pay as you go nature of such a system would not permit such opting out without risking a collapse and a social crisis.
Those whose annual income exceeds Lm7000 would need such supplementary pensions systems. For these the maximum state pension of Lm4600 would not fit well within the two-thirds ratio on which the pension system was originally built.
At a time when the state can’t cope with its social commitments to those in real need and we are hearing talks of dismantling or downgrading the social structure to roll it back to affordable level, why should the state give fiscal incentives for those earning more than Lm7000 to entice them to provide for supplementary pension schemes to sustain their pension income beyond the maximum national pension?
There is nothing to stop such persons from saving for their pension days. Many have been doing it through savings, investments or life insurance arrangements. They have not had any fiscal rebates for so doing beyond the lower withholding tax applicable for income on such savings or investments.
I maintain that the introduction of other compulsory or fiscally driven supplementary pension schemes could lead to an over-saving situation and could possibly increase the pressure for wage increases risking loss of competitiveness. This will be particularly so if benchmark employers like the government are forced to contribute to such supplementary pension schemes adding to their supplementary labour costs without increasing the take-home pay of their employees.
And there are more arguments against the existence of the supposed pension crisis. Many people in command of an income which would limit them to the maximum state pension short of an effective two-thirds benchmark, are probably home-owners. They have probably serviced a house-loan/mortgage for a long number of years so they will have full equity in their property residence upon or before going on pension.
Is saving through investment in residential real estate any less effective for pension purposes than saving in other forms of assets, whether financial (like bank deposits and bonds) or real (like equities). If anything local experience shows with consistency that real estate has over a long term period been a winner strategy for investors in many cases delivering returns superior to financial or equity investments.
So my question is why should such people be made to save for pension three times – once by paying for the pay as you go national insurance, a second time by servicing a mortgage to have a debt free residential property upon retirement and a third time through fiscal pushing towards supplementary pension schemes?
Portfolio
Strategy 1: No Risk Lm 1005.705
Strategy 2: Medium Risk Lm 991.420 (after Lm40 charges)
Strategy 3: High Risk Lm Lm 1094.445 (after Lm20 charges)
Strategy 4 High Risk For Currency . Lm 986.270 (after Lm40 charges)
All prices and rates of exchange are the latest available on
Strategy 3 lost most of the sharp gain of the previous week as Maltacom share price retracted most of the gains registered. Strategy 1 continued to accumulate interest at 3.5%.
Strategies 2 & 4 both fell as the risk of an interest rate reversal depressed both bonds and shares and tech stocks ( to which strategy 4 is particularly exposed) were further depressed by some bad news from Cisco.
Overall the news from the international economy remains positive and as the risk of interest rate reversal starts being put in perspective, equities may be expected to perform better after the august lull.
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