How true is it that there is a pensions crisis?

The current pensions system, established in 1979, is based on a so-called pay-as-you-go system. What this means is that people working today pay contributions that finance today's pensioners. People working today are, therefore, not investing their contributions for their own pensions.

In the future our population will be affected as follows:

People who are 60 and over today stand at 18 per cent.

In 2020 these will increase to 25.7 per cent.

In 2050 these will increase to 31.2 per cent.

At the same time the population today stands at 389,000

By 2035 this will decrease to 369,900

By 2050 this will decrease to 333,800

People are living longer. Men over 70 today have a life expectancy of 10.9.

By 2022 this will increase to 12.2.

By 2032 this will increase to 12.9.

Women over 70 today have a life expectancy of 14.2.

In 2022 this will increase to 16.2.

In 2032 this will increase to 17.1.

Life births are falling.

In 1944 this stood at 39.3

In 1980 this stood at 17.6

In 2003 this stood at 10.03

It clearly follows that there will be far less people in the future to pay contributions to support their pensioners. The money to finance pensions as they stand today will simply not be available.

There are two other concerns. First, a retirement pension is based on two-thirds of a maximum income ceiling of Lm6,750. This ceiling was established in 1987 and has not changed since then. Due to inflation and increased living standards, the monetary value of Lm6,750 has been steadily decreasing and is considered to become inadequate for the future.

Second, the PAYG system is the only pension system in Malta. This has falsely created the belief that by paying social security contributions one is fully providing for his or her future. This is not entirely correct. The current pension system only provides at most a pension on two-thirds of the Lm6,750, that is Lm4,500. Given today's living standards, unless a person saves for his or her future this maximum pension entitlement will not be sufficient to allow a person to live at the same standard of living he or she was accustomed to prior to retirement.

These concerns relate mostly to future pensioners. We are still in time to take measures and make changes in a smooth way. This is the idea behind the White Paper issued by the government.

If no changes are made, future pensioners will face a problem. This means that if we decide to avoid making changes now a future government will have to make harsher changes.

www.pensions.gov.mt