6 - 12 April 2000

Retirement pensions systems have to be revised

by David Kelleher

There is an urgent need to revise the present contributory retirement pensions systems in order to provide a reasonable and equitable security for all in old age. This is one of the recommendations and tasks to be tackled by the National Commission on Welfare Reform. The report was tabled on House earlier this week.

The interim report gives a detailed insight into the present situation of the welfare society in Malta and provides research that confirms that the welfare gap will rise considerably by 2075.

In its initial conclusions, the commission said that particularly because of the aging population the fiscal strain arising from the aging pensions expenditure has now come to the fore.

"The system is complicated by the following facts. Contributions have to support many types of benefits; contributions are already high; and pensions are indexed to growth in wages which makes the system generous and practically exceptional but more expensive," the report states.

The commission said its task is to strive to find solutions to the above and other problems. "The commission will strive to propose a new alternative strategy for pensions for the new millennium which, while providing reasonable and equitable security for all in old age, will be affordable for the country as a whole and contribute to general economic welfare," the commission said.

The report, quoting figures from a previous study "Averting the Pensions Crisis - the case in Malta" said that by 2025 there will be a 15-fold rise in retirement pensions expenditure alone and a 13-fold overall rise in total expenditure on benefits.

While total expenditure in 1995 was Lm81.3m, this figure is estimated to rise to Lm121.7m this year, Lm295.8m by 2010 and Lm992.6m by 2025.

"The most rapidly rising expenditure relates to retirement pensions. According to figures revised by the Ministry of Finance for 1999, retirement pensions constituted 48.3 per cent of all contributory benefit expenditure, or 39 per cent of total expenditure," the commission said.

By 2025, it is estimated that this will have doubled in real terms, constituting 25 per cent of GDP (Gross Domestic Product) by 2025, before settling at 19 per cent by 2075.

This growing welfare gap, the interim report says, is attributed to the rise in elderly population. Life expectancy currently stands at 74.9 for males and 79.8 for females.

The population of pensionable age is expected to increase at an annual average rate two per cent, increasing markedly after 2004 as the baby-boomers born just after World War Two reach retirement age.

Those over 61 constituted 15.2 per cent of the population in 1996 and is predicted to increase to 24.3 per cent by 2024.