Social welfare: acting now to allay future fears

by David Kelleher

The facts are there for all to see. The Maltese population is getting older. The birth rate has been on the decline for a number of years. Today there are four employees to fund one retired person. The welfare gap is set to increase even further.
The country will have a serious problem to solve within the next decade or two. Sustaining the country’s welfare systems – in its present structure – is not going to be possible unless the government finds a means to generate more wealth and distribute it fairly.
The main obstacle successive governments have tried to overcome has not been finding a long lasting solution but rather agreeing, or even better, admitting that a problem exists.
Admitting that a problem does in fact exist in Malta and the impact this will have on the local economy is the theme of a conference being held next month and organised by EMCS Limited and sponsored by Middle Sea Group.
The conference, entitled “Social Welfare Reform: An economic challenge and a financial services opportunity” will be held at the Corinthia San Gorg, St Julian’s on Friday, 10 November.
EMCS Ltd’s chairman & managing director, Dr John C. Grech, and Middle Sea Group’s chairman, Mario C. Grech, spoke to The Malta Business Weekly on the reasons why this issue was chosen.
“There has been a lot of discussion over the past months on social welfare and the pensions problem. Unfortunately, much has been said but very little has in actual fact been done to find a lasting solution. The aim of this conference is to address the topic in a public forum and try to find a lasting solution,” Dr Grech said.
“What policymakers must ask is: ‘does the problem exist or is it fiction’?” Mr Grech asked. “What is required to identify the depth of such a problem? How are we as a nation to go about it? The answer will only come about through a qualitative and a scientific quantitative approach. What this country needs is a long-term solution. There has to be continuity,” he added.
Many are mistaken in the belief that social welfare just covers pensions and not the whole spectrum of benefit offered by the State to the people. These include health care, care for the elderly, pensions, workmen compensation among other benefits.
“The conference will be dealing with social welfare reform on two levels: the sustainability of pensions and health care. While there are other areas that also have to be tackled, the conference will focus on these two priorities,” Dr Grech told The Malta Business Weekly.
However, before a solution to this problem is found, one has to address the fundamental issue: the economy.
“The fundamental point is the economy and how the country can create more wealth while making good use or distribute the resources it has. That is the first thing that must be done. We have to pre-empt a situation before it develops,” Dr Grech added.
One must also realise that the problem does not only exist in Malta but it is a problem that governments around the world are facing. Although the easiest solution is to sit back and grumble, there are various options that could be studied to
provide a long-term solution, a lasting one at that.
“We need to face reality. One option that I believe should be considered, is the role of the private sector. Obviously, before this sector becomes involved there has to be a mechanism that drives it forward,” Mr Grech said.
Everyone agrees that the existing Pay-As-You-Go (PAYG) national pension system should be re-examined and appropriate action taken to make it sustainable in the long-term.
“Ideally this issue should be discussed not by the government alone but by Parliament as a whole. The pensions issue affects the whole country and not just those in government,” Mr Grech added.
The question that many are asking however, is how can this be effected.
“First we have to attain a revised and sustainable first tier national pension (safety net) based on the fundamental principle of “solidarity and redistribution.”
“Then we need the reintroduction of a second tier and tax incentivised ‘funded occupational pension’, even if optional initially. Collective agreements could be used as a medium for optional introduction in the initial years. The people should be further encouraged to invest in personal retirement enhancement plans – through life savings and investment planning,” Mr Grech explained.
While this may offer a temporary solution, as the law stands this would not be possible.
“The maximum level of pension is stipulated by the government. Thus, even if a second tier pension was introduced, the extra amount earned would be deducted from the maximum level stipulated in the law. This will defeat the objective. Those who want to contribute to such a fund should be allowed to without losing out,” Dr Grech emphasised.
“What is of utmost importance is that the government should focus on creating wealth and then fairly distributing it,” he added.
“The concept of Pater Familias – that the government is there for everyone – has to be seriously revisited. The role of government should be that of providing direction and also to provide for those ‘really’ in need. We have reached a stage to readdress the existing cultures”, Mr Grech said.
The conference will create an opportunity to share and debate the analysis of the experts as regards public policy challenges and financial opportunities.
“It will also provide a forum for discussion with the policy-maker and the regulator together with the experts. Participants will be in a position to acquire information directly from all the players and they will also have the opportunity to contribute to the discussion regarding a policy that shall have a weighty impact upon individuals’ financial choices and decisions as well as the sustainability of the Maltese economy in an increasingly competitive environment,” Dr Grech said.

Who should attend the conference?

This is a conference organised for all those who wish to be informed about and participate in the debate on the reform of social welfare and assess the related challenges and opportunities.
Financial services and insurance operators, bankers, economists, union leaders and officials, opinion leaders, entrepreneurs, regulators, financial planners and advisers, public officials, social welfare and health administrators, medical professionals and all interested in the changes in the social welfare system and the outcomes from the change could benefit from attending.
Influential speakers, all experts in their own field, will be addressing the delegates during the conference. These include Christopher D. Daykin, Government Actuary in the UK, Vincent J. Rizzo, a founder member of the Malta Stock Exchange and a leading stockbroker, Joseph L. Pace, a medical professor and president for the Foundation for Medical Services, Prof. Frederick Fenech, a professor of medicine and adviser, Mario C. Grech, chairman of Middle Sea Group, Michael C. Bonello, governor of the Central Bank of Malta, and David Harris, an expert on international social security reform trends and consultant on Insurance and Financial Services Practices with Watson Wyatt Worldwide.
During the conference two workshops will be held. The first topic, Public Policy and Private Initiative: Who will pay for what in a changing social welfare scenario, will be debated by the Deputy Prime Minister and Minister for Social Policy Dr Lawrence Gonzi, the Minister of Finance Mr John Dalli, Mr Christopher D. Daykin, Dr Joseph L. Pace, Prof. Frederick Fenech, and Mr. Michael C. Bonello.
The second workshop will focus on Opportunities in responding to market needs: what will be the response of the financial services sector?. The panel will include Prof. Joe Bannister, MFSC chairman, Alfred Mallia, chairman, Malta Stock Exchange, David Harris, and Vincent J. Rizzo.
A number of institutions/organisations will also be present during the conference with information stands in a purposely organised exhibition to be held alongside the conference. More information can be obtained from Dorothy Camilleri or Mariella Cini at EMCS Ltd, on tel: 341848/9, or by email: info@emcs.com.mt or on their website: www.emcs.com.mt.