Editorial: The €37,000 pension question

On March 1, Prime Minister Robert Abela said that while previous budgets had removed tax on the maximum pension equivalent, commonly known as the two-thirds pension, pensioners who continued to work or had other investments were still finding themselves paying tax.

“Now, for all pensioners who have an income double the maximum pension, all that income will be tax-free,” Abela said, citing an upcoming legal notice which would mean that “from next week, they will pay 0% tax”.

A fact-check we carried out clarified that the €37,000 exemption was on pension income and not income for pensioners.

Take a step back: the main help being dished out to pensioners – the 2022 phasing out of all tax on pensions over a five-year period – was already reaching its pinnacle.

Why all this focus on pensioners? Bear in mind that governments have already cut absolute – not relative – poverty by a considerable margin but pensioners remain the most vulnerable segment.

The tight labour market, as well as the rising life expectancy, both pointed towards the common-sense solution of encouraging people to work after their official retirement age.

Add to this scenario the fact that only a small percentage of people invested in private pensions, while occupational pensions are still stuck in the twilight zone.

So, if you are a pensioner who still has income from part-time work, for example, or who has properties to rent out, celebrating this legal notice is premature.

There is no doubt that any tax concession for pensioners must be welcomed, even if it only benefits the few and not the majority.

It is important to keep in mind that there are already measures that exempt some non-pension income from tax altogether, with pensioners able to earn up to €15,000 in additional income tax-free, if they are married, or €12,000 if they are on a single tax computation. 

The new measure just introduced raised the threshold for tax-free pension income to just over €37,000, from the previous €16,600.

But – and this is where the confusion starts – it does not apply to income from other investments, rentals or employment.

The issue: Who on earth earns a pension of €37,000?

The government’s claim that 16,000 pensioners will benefit has to be challenged in the context of ‘will benefit by how much exactly?’, as few will benefit from the exemption on the full €37,000.

In other words, it will not really help those who only earn an average retirement pension and those who are at risk of absolute poverty.

With a general election looming, you would expect the incumbent government to make numerous promises. These will have to be tempered by any money being taken out of the so-called war chest of €250 million.

Money, as we were all taught from an early age, does not grow on trees even if  the finance minister might have more wriggle room than he did a few years ago.

Will subsidies on energy and cushions against oil-inspired inflation help people cope with their day-to-day bills? Of that, there can be no doubt.

Will these tax measures help those who are the most vulnerable? That, alas, seems doubtful.

In the wider context, it is important to remember that pensioners remain among those most exposed to the pressures of rising prices. Inflation erodes fixed incomes more quickly than it does wages, and many elderly people have little room to compensate.

For those living on an average pension, even modest increases in the cost of food, energy and everyday necessities can make a significant difference to their quality of life.