29 June - 5 July 2000

Insurance Association launches pensions awareness campaign

by Anthony Manduca

The Malta Insurance Association has launched a pensions awareness campaign in order to highlight the seriousness of the welfare gap and the so-called "pensions time bomb" as well as to put pressure on the government to act on this issue.

Social security contributions have shot up from 8.3 per cent of one's salary in 1998 to 10 per cent this year. Total government expenditure on pensions has also increased from Lm71m in 1994 to Lm104m in 1998. The burgeoning of pension expenditure and the increased costs to sustain it are being felt, with four emp-loyees financing one retired person.

The Malta Insurance Association is making it clear that the situation is bound to get worse as in the near future there will be less workers contributing towards the pensions of a larger ageing population. People over 61 made up 15.2 per cent of the population in 1996. This figure is set to increase to 24.3 per cent by 2024. Can we guarantee a future pension to today's young generation if we retain the present old-style system ?

The association says that relying on the government is not an answer. The Minister of Finance, John Dalli, acknowledged this in his budget for 1999. Apart from increasing employers' and employees' national social contributions, the government appointed a National Welfare Reform Commission. One of its tasks was to revise the pension structure and make new recommendations

There are various solutions to this problem - one of them being to give incentives to the working population to take out a private pension in addition to their State pension.

A motive to start a private pension would exist if one can actually put money into and get tax relief on a tax free fund. The present State pension contributions are not invested and can therefore never benefit from any capital growth. Insurers can therefore help government tackle this problem by developing products along these lines.

However this is not at all possible today because government plans have not yet been made known. It is for this reason that the Malta Insurance Association has welcomed the Preliminary Report of the Welfare Reform Commission, and hopes that this will serve as a spring board to speed up the discussion process and to come up with tangible solutions.