Action needed 'now' on pensions system

The current pension system could remain sustainable for some years but, apart from becoming increasingly "irrelevant", it will also start costing the government more, economist Gordon Cordina said yesterday.

Dr Cordina said the country needed to take a decision as to how generous pensions should be, how much burden will be put on the productive sector and how much will be financed by general taxation.

In an interview in The Times yesterday, Labour Party leader Alfred Sant said that "the present structure of pensions is sustainable" and the MLP was guaranteeing that.

Contacted by The Times, Dr Cordina said that while it was possible to maintain the current pensions system, there was the risk that drastic changes would have to be made in 20 years' time. Another option was to start making changes as from today.

Dr Cordina said one needed to keep in mind that in 25 years' time the number of workers for each pensioner would go down from the current four to two. "The decision has to take this demographic reality in consideration," he said.

The Family and Social Solidarity Ministry also referred to demographic projections, saying they proved Dr Sant's statement incorrect.

"The basic fundamental principle of any pay-as-you-go contributory scheme like ours is that the contributions being paid would suffice for the benefits and pensions that are being received. Even if we had to ignore the fact that our current system covers a number of other contingencies besides pensions, such as sickness, injury and disability, it would still not cover pensions for retirement and widowhood on its own," it said.

A spokesman for the ministry explained that the ratio of persons of working age to the dependent population - the ratio of persons contributing towards the scheme to the persons receiving a pension - is set to fall from four contributors at present to slightly above two for each beneficiary by the year 2025.

When contacted yesterday, the spokesman said the pensions' reform was intended not only to provide a sustainable system but also to address the requirement of having an adequate pensions system to prevent poverty in old age and, as far as possible, allow the continuation of an unchanged standard of living.

"The current minimum pensionable income allows for a two-thirds pension of an average salary, up to a maximum of Lm6,750 per annum. However when the average pension is compared to the average wage, we find that while in the year 2002 it was slightly above 53 per cent of the average wage by the year 2022 the average pension will go down to 40 per cent of the average wage. This means that the current pension system will definitely prove inadequate for the majority of workers. Moreover, it is estimated that, given wage market forces, this decline will accelerate more rapidly in the future."

The spokesman said that with regard to the projected number of beneficiaries receiving a retirement pension, their number - which in the year 2003 stood at 25,600 - was expected to increase to 55,600 by the year 2020.

"One cannot ignore the impact that an increase in longevity will have on the sustainability of the current system and the ageing phenomenon will pose a major financing challenge. Moreover, the current state of affairs militates against a number of workers, particularly women, who due to their family commitments cannot have a pension of their own, even if they spend a number of years in employment. If no action is taken now, then it will be too late to rectify the situation."

The spokesman said the above only takes into account retirement pensions.

"If it has been proved that the social security contribution is not adequate for pensions, what about the sustainability of other social security benefits and, in an aging population scenario, the sustainability of the national health scheme?

It is only through a serious consideration of the expected fiscal and social issues that may threaten the long-term sustainability of the economy, which a responsible government is in duty bound to address, that the country will be able to maintain and improve its welfare system for future generations," the spokesman said.

Maurice Petrocochino, vice president of the Pensioners' Association, said the present pensions system could not remain as such, adding that it would not remain sustainable in some years' time.

He said "a radical change" was needed but this could not take place overnight. "We need to make changes over a period of time," he said.

He said that even the World Bank spoke of a pensions reform that extended to 2072. However, Mr Petrocochino said this was a too long a time away in order to be able to make projections for. "But work to change the pension system should start now and not in 2072," he said.

Mr Petrocochino stressed that the present pension was already not ideal. He explained that the maximum pension one could get was the same as in 1980. However, while this went a long way 24 years ago it was barely a phenomenal amount today.

"Change is necessary," he maintained.