8 - 14March 2001

Pensions – take action

The pensions problem in Malta resurfaces every now and then and the unions, associations and interested bodies all voice their concerns – concerns which are very real. Although it has been discussed in the media and in public fora, very little has been actually done to address the problem. The Commission on Welfare Reform has, as yet, still not presented its final report, even though the deadline was last December. Ministry for Social Policy sources told The Malta Business Weekly a few weeks back that the ministry was constantly urging the commission to finalise its report.
Although it is easy to criticise the commission, the government, opposition and the Unions are also to blame. They all agree that pensions is a growing problem, but when it comes to the crunch, they all shy away. Obviously, introducing reform in the welfare system could lead to a number of very important votes being lost. At the end of the day all MPs want to get re-elected come the next election.
The Malta Business Weekly believes that it will take a very courageous government to implement what the Commission has to say in the report when it is published. Some government sources close to the Finance Ministry want to see the reforms in place by the next budget. Other sources are not so sure.
What is certain, however, is that any reforms will raise a heated debate both on a national and individual basis. The government would do well to heed the warning that introducing cosmetic changes will not solve anything except put the burden onto future governments.
Here are the facts. The ratio of people aged over 60 is expected to grow from 16 per cent to 24 per cent by the year 2020. Indeed, it is estimated that the pensionable age population will exceed 100,000 by the year 2025. Consequently, whereas there are at present four potential workers to every retiree aged over 61, this ratio will drop to two in 30 years’ time if the legal age of retirement is not changed.
The present situation is based on equal social security contributions made by employers, government and employees at the rate of 10 per cent of the latters’ salary up to a maximum of Lm6,750. On retirement, a person is entitled to a pension equal to two thirds of a sum that is calculated on the average income received during the highest consecutive three years of employment. This latter figure also being capped at a maximum of Lm6,750. The capping of the Lm6,750 was fixed 20 years ago.
If this figure is left unchanged for the next 20 years, a 40-year-old on retirement will find that he will not survive on just over Lm4,000. If anything has to change, then the capped amount must. This, however, is but one solution. Re-introducing private pensions schemes for companies and individuals is a must. The three-tier systems as proposed by many is one excellent system that has worked abroad. Welfare reform will hurt some but the number of people who stand to benefit over the next few decades will be huge. It is now up to the politicians to decide whether they are working in the country’s interests or their own, ie their political career and re-election.

Fostering foreign investment

One of the main problems that this government has never really tackled head-on is low level of new foreign investment into Malta. The reasons for this have been a lack of incentives for companies to come here or else the state of the economy is not conducive to attracting investment.
The Business Promotion Act, which is an overhaul of the Industrial Development Act now targets other areas and encourages local and foreign companies to do business here in Malta and not necessarily with the intention of exporting their products. Over the past few weeks, the Malta Development Corporation has been actively seeking businesses in Europe that might be interested in setting up an office here. One of the countries being targeted by the MDC is Sweden, a country that has similar characteristics to ours. According to the Foreign Editor of one of Sweden’s leading business newspapers, Malta has a lot to offer Swedish companies. Local workers, he told this newspaper, are highly skilled, hard-working and give more than the average worker in Sweden, and the local infrastructure is very attractive to Information and Communication Technology companies (ICTs).
Given the right opportunities, foreign companies will come to Malta. They would be willing to employ local people, train them and offer attractive salaries. The MDC is doing a lot in this regard and the BPA will certainly give the island a competitive edge. Yet the government still needs to get its house in order. Offering attractive packages and incentives is but one factor. Any companies coming to Malta must feel secure that they are working in a stable environment, that legislation is similar to what they have at home and, more importantly, there is an element of political consensus.