The White Paper on the pensions reform published by the government on Budget Day and entitled Pensions Adequate and Sustainable is in effect the sixth report that has been commissioned on the subject. Each time, it was felt that the time was not yet ripe for a debate on the subject of pensions to be started. Some felt that this problem will hit us several years from now and therefore our attention should be focussed on more urgent things.
The subtitle of the White Paper, on the other hand, highlights the urgency of the issue. It reads "reforms needed now to ensure adequate and sustainable pensions for future generations".
I believe it would be futile to waste any more time to discuss as to whether we should or should not discuss pensions reform now. Those who feel that their pension is secure do not feel the problem and therefore could not care less about the issue. Those who feel that their pension is either under threat or may even not be available, want a discussion on the subject and want it now.
The point is fairly straightforward. As with any issue in life, the longer one allows it to fester, the more drastic the action that needs to be taken shall be in future; moreover the longer one allows things to fester the narrower the options shall be.
Having accepted that, one needs to assess whether the proposals contained in the Spiteri-Gingell report are acceptable or not; whether they go far enough to meet the requirement of making sure that pensions in future are adequate and sustainable; whether they answer to the need of social solidarity while simultaneously addressing the need to have pensions drain less resources from the public purse. These are considerations that are very difficult to reconcile; but reconciled they must be in order to maintain social harmony and a sustainable public sector expenditure.
The White Paper puts forward a number of recommendations. Several of these are tied to an implementation date of beginning 2007, and even then, implementation would be done in a scaled manner. The recommendations can be grouped into two. For each of these there are also recommendations regarding implementation.
The first one is that retirement age should go up to 65 years for both men and women. The second is that the new pensions scheme should have a three-tiered structure, the first tier guaranteeing a minimum pension, the second aimed at supplementing one's pension income to enhance one's standard of living, while the third would be a voluntary option aimed at complementing one's pensions income.
On the issue of increasing retirement age to 65, there may be an element of controversy. However, pensions can only be sustained if there are enough people working and paying social security contributions. With an aging population, there is the evident risk that the number of persons working would go down - not because there would not be enough jobs but because there would not be enough people available for work.
The much improved life expectancy in the last three decades, a more healthy and safe working environment and the growth of the services sector have made sure that, at age 60, a person, on average, is able to work and give his or her 100 per cent contribution for another five years.
Having a three-tier pensions scheme would seek to provide a minimum pensions that provides against what is being termed as social exclusion. This is necessary for any economy to thrive. It also seeks to provide for supplements to one's pension, whereby one can continue to enjoy a standard of living similar to the one enjoyed prior to retirement.
In principle, one can only agree with these proposals. However, the first and second tier of the structure should be compulsory while only the third should be voluntary.
There is one aspect where I disagree with the White Paper and this relates to the funding of the pensions scheme. The White Paper proposes that the current funding structure remains unchanged. I believe that there should be a distinction between the funding aspect and the distribution aspect, in particular in relation to the second tier if this were made mandatory.
The distribution aspect should be governed by specific rules and there should be capping of the amounts paid out. On the other hand, I strongly advocate that the current capping that exists with regard to social security contributions be removed. In other words, the funding structure should be progressive in nature like any socially just income tax system.
It needs to be stated that, irrespective of whatever structure of pensions scheme the government opts for (hopefully with the support of all social partners and the Malta Labour Party as this is an issue that is certainly apolitical and will impact on political parties equally as they assume the responsibility of government), it can only be sustainable if two conditions are met. The first is that there must be a healthy economic growth, which provides jobs of a stable nature. The second is that there must be a strong national culture that seeks to eradicate abuse and tax evasion.
Either a lack of healthy economic growth or abuse of the social security system and tax evasion or both will render any pensions scheme unsustainable. It is therefore in everyone's interest to make sure that these conditions are met. The Spiteri-Gingell report will eventually be regarded as a milestone in this process because it provides a very good basis for discussion on this thorny issue.