Drastic action to solve the pension crisis would have to be taken within five years, a top life insurance company executive predicted.
David Curmi, CEO of Mapfre MSV Life, said yesterday that when he spoke of action he had in mind the introduction of enrolment in saving schemes as the default option for workers, albeit with an opt-off clause should they so wish.
Such ‘soft compulsion’ schemes had been introduced successfully in the UK and were also being considered by Ireland, he said.
The pensions crisis was mounting as the number of those over 65 years old increased as a percentage of the population. In 20 years’ time, the number would double compared to those of working age, meaning that while there were now four workers whose ‘pay as you go’ contributions would cover each pensioner, the problematic scenario would be much more pronounced by 2039, Mr Curmi told a business breakfast on the economy organised by Mapfre Middlesea and Mapfre MSV Life.
He pointed out that Malta would be dedicating 16 per cent of its GDP to pensions within 20 years, if not earlier, which was well above the OECD average. “This is because we are decades late in getting the younger generation to save,” he said, adding that the private pension incentives introduced over the past few years were simply “not enough”.
Decades late in getting the younger generation to save
FinanceMalta head Kenneth Farrugia referred to the effects of Brexit, noting that those operating in Malta with a view to passporting to the UK would certainly be hit. Most of such operators were active in asset management, insurance and family businesses.
He said that small- and medium-sized businesses in the UK aimed at passporting into the EU would be affected because they tended to hold off on decision-making till the last moment. Still the impact had not yet been quantified, Mr Farrugia noted, predicting that they would rely on a wholesale shift to other member states or opt for co-location within the EU.
Brexit – whether hard or soft – would not make any difference to the larger financial services companies that had bases in both the UK and the EU because all they needed to do was tweak operations and headcount between them, he continued.
Companies that served the British market would also not have to worry much as did companies from outside the EU that chose the UK because it was a leading financial centre but did not do business there. The latter would sustain minimal impact unless they used the UK to passport services into the EU, in which case they would have quite a problem. The issue, he stressed, was that with so little clarity over what would happen, very little could be quantified.
“The UK could, once it is out of the EU, negotiate its own free trade agreements but, so far, none have been formalised and it is still not clear what will happen,” Mr Farrugia said.
The head of the University of Malta’s Research, Innovation and Development Trust, Wilfred Kenely, argued that, while the going was good, now was the time for the island to invest in research and development. Malta’s R&D as a percentage of GDP stood at just 0.6 per cent and it could only get smaller unless action was taken, he remarked.
Spanish Ambassador Consuelo Femenia Guardiola noted that better air connectivity could have a positive effect on relations between the two countries, saying low-cost airlines alone were not enough. “I believe there are enough flows between the countries to justify more scheduled direct links. I appreciate that these are commercial decisions but it is an idea worth looking into,” she told the audience.