GRTU sceptical of emphasis on private pensions

The pensions system should not be dismantled before a good alternative is properly thought out, the Malta Chamber of Small and Medium Enterprise (GRTU) said yesterday, emphasising it was sceptical of all the emphasis being made on private pensions.

The GRTU called on the government not to implement a reform "hastily", pointing out that the Pensions Reform White Paper "lacked" a proper economic analysis of the measures it was proposing.

The GRTU believes that pensioners cannot rely on private pensions in order to assure themselves of an adequate standard of living because the state should not abdicate its role of enhancing social cohesion. In this respect, the three-pillar system proposed by the Pensions Working Group should be entirely based on a public fund that would be professionally run by a parliamentary body "accountable to the contributor".

"An agreement between all parties is necessary before the present system is touched. If we resort to half measures for the sake of going ahead with the reform, we will find ourselves reforming the system again in 10 years' time," GRTU director general Vince Farrugia said, arguing it was unlikely that there would be an imbalance in the present system until 2011 while "no major problems" were envisaged before 2025.

Mr Farrugia said Malta was a small economy and pensions should be administered under the same cap if the country wanted pensioners to have an adequate standard of living.

"The GRTU is sceptical of all the emphasis being made about private pensions. If these fail because of world economic problems, the problem would fall on public funds just the same," he said.

According to the GRTU, the first pillar pension should be two-thirds of the country's median income, based on a 40-year contributory period. The Lm6,750 ceiling should be lifted and increments to pensions under the reformed system be awarded according to the national wages' index and not according to a retail price index.

Nobody should be entitled to a full pension unless they contribute for the entire 40-year period, the GRTU said.

The second pillar, which should also form part of the public pension fund, would not be mandatory like the first pillar but would entail workers paying a higher rate than in the first pillar.

The GRTU said this pension should also be uncapped. In this case, pensioners would receive two thirds of the average wage of the last 10 years of employment. This level would also be adjusted each year according to the wages index worked out by the National Statistics Office.

The third pillar would also be offered by the central pensions fund and workers who opt for this scheme would not be obliged to contribute for the other schemes because they would be paying a much higher contribution. The GRTU believes that a contributor may not opt for the third pillar and buy a private pension scheme instead. However, s/he would still have to contribute for the first pillar just the same.

Mr Farrugia said the government should make a financial injection to the pensions fund at the start.

"The unused land that was passed on to the government from the Church, which now falls under the Joint Office, could be sold or leased under commercial rates and the income could go to the pensions fund. In this way, such land would be used for social purposes," Mr Farrugia said.

The GRTU thinks the retirement age should not be increased for everyone because people doing strenuous jobs become less productive as they grow older. The association said it would not be fair for people who would have paid their 40 years of contributions to be obliged to work until the age of 65 but agreed that tax incentives should be given to people who wish to work beyond 61.

Mr Farrugia said the GRTU disagreed with the suggestion made in the World Bank report that the contribution paid by self-employed businessmen should be raised from 15 to 20 per cent.

"The existing system discriminates against the self-employed. They should not be made to pay both as employers and employees," Mr Farrugia said, adding that the system should not discourage business initiatives.

"Under the present system, those self-employed who reach the pensionable age do not get their business licence renewed. This is unfair and should stop," Mr Farrugia said.