Pension reforms

If we want to have an adequate and sustainable future pension system we have to create the right conditions for more of our present and future workforce to remain active for as long as it is possible, for sure longer than at present. At the moment the conditions in Malta are not conducive to this end. And the statistics prove it.

Only about 33 per cent of the 55-64 years age cohort in Malta are active - still in some form of employment. The average exit age from employment is about 57 years. The uncertainty of what is going to be the future statutory pension age (SPA) has resulted in double the number of annual invalid pensioners in the last two years. From an annual average of about 450 it has risen to about 900.

What are we going to do to reduce the attractive temptation to retire early and enjoy earlier the pleasures of a longer life free from the stress of work? The answer is: Create incentives and reduce taxation for a longer working life.

The following are my ideas on how we can try to achieve this target:

End the policy of early retirement schemes. Restructuring and rationalising the employment workforce should take the form of a policy of re-training and re-deploying, not retiring early.

Create incentives and reduce taxation to encourage a greater active participation rate by the ageing workforce. In EU parlance the ageing workforce is the 55-64 years age cohort.

The maximum statutory pension age should remain 61 years but it should not be mandatory. The government should introduce measures to ensure that those who choose to work beyond the statutory pension age can continue to do so.

In order to encourage workers to defer taking their pension at the statutory pension age, they should be rewarded properly by the state system.

This could be done in two ways thus offering a choice, either a) have his pension increased by 10 per cent for every year for a maximum of five years if taking a pension is deferred or b) have a comparable, taxable lump sum payment.

Create the right conditions to encourage more women to join the labour market, thus increasing the number of workers who pay national insurance contributions. Adjust the NI contribution and make it more favourable for women starting to work part time, reduce taxation for a working couple, open more childcare centres, introduce flexible hours and campaign for a change in culture.

Reduce the tax rate to 15 per cent on employment earnings for all workers between the ages of 55 and the statutory pension age.

Introduction of flexible and shorter working hours after the age of 55 but still receiving full pay.

An improved and more acceptable work environment and job content by employers for workers to be happy and feel developing and fulfilled.

NI contribution should be paid only up to statutory pension age (as at present) even if one chooses to continue working after.

The national minimum wage limit on part time earnings after the statutory pension age and up to 65 years for those who retire should be removed or at least raised to Lm6,000.

Raise the limit on earnings from part time work for which one only pays 15 pee cent income tax after the age of 65 from the present Lm3,000 to Lm6,000.

Introduce the idea of partial retirement with a partial pension and partial employment.

Have stricter criteria for invalidity pensions. The status of invalid should be reviewed every two years. This would lead to the possible rehabilitation and re-integration in the labour market of those declared invalid.

I propose that the above new policies, incentives and tax reductions (tried successfully in many other countries) should be introduced immediately for those who will be 55 or more in 2010 - to help to achieve:

Our target of raising to 40 per cent the activity rate of the aging workforce (55-64 years), as per National Action Plan (NAP) for Employment, which at present is only about 33 per cent in Malta. The EU target is 50 per cent by 2010.

The raising of the local average exit age from employment by 3.5 years as per NAP for Employment, which at present is about 57 years. The EU target is five years by 2010.