We live in an era of instant gratification. Many, not just the younger generations, want to enjoy life and follow the maxim ‘live for today and don’t worry about tomorrow’.
The welfare state socio-economic model delivered ‘free’ public services like education, health, and pensions to all from the cradle to the grave. Today, this model provides nasty surprises to those who relied on its promises, which opportunistic politicians often touted. Sadly, these surprises hit most people at an age when it is too late to remedy the negative impact on their lifestyles.
Social Policy Minister Michael Falzon is now sounding the alarm bell about the risks of the pensions’ time bomb that has been ticking for decades.
“With the current demographic rates, we need to talk about private pension schemes. Some people may say we are admitting defeat and won’t be able to provide for our people in 20 years.”
While claiming not to admit defeat, the government should be honest with the people and acknowledge that the economic model that has encouraged consumption for decades is beginning to show it is unsustainable.
Various pension reform studies in the past three decades have highlighted the need to encourage people to save more. But the political will to turn this pious exhortation into a robust strategy was never there.
The study showed that 75 per cent of people said the government pension was how they planned to fund their retirement. Many baby boomers born in the mid-20th century are already experiencing the impact on their lifestyle of not building an adequate pension pot for their retirement.
It is no wonder that some retired persons who depend on the national pension for their living income are already struggling to maintain the lifestyle they enjoyed.
Falzon is a former banker who likes the idea of promoting financial sector solutions to ease the growing pensions pressure on the public purse. Unfortunately, while there is no shortage of private pension schemes run by banks and insurance companies, the returns are often inadequate.
A decade of low interest rates, financial crises, and occasional incompetent fund management, combined with high administration fees charged by private pension providers have created a credibility issue for the financial services sector.
The government’s first step must be to discourage excessive consumption, which often results from inappropriate subsidies that distort the actual cost of what we consume. Of course, those already at risk of poverty should be given all the financial help they need to live decently. A fair distribution of the country’s wealth must be the rock base of long-term socio-economic planning.
There are some positive initiatives, of course. An annual tax credit is available to individuals who make contributions to a private retirement scheme of 25% of the aggregate amount of the qualifying contributions made during a year, up to a maximum of €750.
The fiscal incentives offered to younger generations to save for retirement must be energised and combined with a mandatory scheme for building a pension pot gradually. Trade unions and political leaders must no longer focus on what is expedient in the short term for the people they lead.
Societal leaders have debated endlessly about the risks of deteriorating demographics for too long. Importing abundant foreign labour has at times been touted as a solution for our unfunded national pension system. This is clearly not enough.
The country’s policymakers must adopt a new mindset that promotes the virtue of thrift and planning to cater for the needs of everyone in every stage of life.