ANALYSIS: Why the PN cannot be trusted on Pensions

The onset of an election campaign, even if not officially declared, can always be counted on to elicit early indications of what the political parties will propose in their electoral manifestos. One could even look at this pre-electoral phase as a test bed for ideas and policies so that the different parties may assess the reaction to them and adjust their electoral programmes accordingly.

It is all part of the game. This even includes parties stealing each other’s ideas and making them their own if they appear to ring a popular bell with the electorate. What is odd, however, is when a political party trumpets “new” policies or proposals which have been staple-diet for some years. It is a sure sign that the party concerned has not done its homework properly.

There were already occasions when the Opposition was caught with its pants down, when it accused the Government of not having a strategy on various social issues, only to have to eat humble pie when the strategy turned out to exist and was reported on annually in public documents. This seems to be the case again with the PN’s announcement of a set of proposals relating to pensions.   

It is worth recalling that, in 2010, a technical group appointed by the PN Government of the time had submitted recommendations regarding the introduction of Second and Third-Pillar pensions, with a view to ensuring that the pensions system becomes adequate and sustainable, with pensioners having more than one source of income. This was after it became apparent that the PN government’s selective reform measures three years before had created a number of problems.

But lack of vision and political courage by a PN administration that was already limping towards its defeat in the polls three years later, resulted in the government ditching the recommendations made by the technical group. Had the government acted, thousands of current and future pensioners would have enjoyed the improvements in income which the PN now says it wants to introduce.

Not even willing to acknowledge the strategic mistake it committed 12 years ago, the PN is now acting as if today’s pensions scene is the same one it bequeathed to the Labour Government elected in 2013.  Nothing is further than the truth.

Today, the Labour Government is spending substantially more on pensions than what was spent in 2012, with expenditure in 2020 totalling almost 885m. For a start, each and every pension today is at least 32 per week higher than the pension paid throughout 25 years of PN administrations when it had not changed by a single cent except for the cost of living increase (with only two-thirds of it awarded for much of these 25 years). Those on the minimum pension have enjoyed a rise of between 40-50 a week. Old-age pensions have benefited from the same increases. Old-age people, whether they continued to live in their homes or in private care homes, started getting an annual grant and also received a higher supplementary assistance.

Today, the Government is spending substantially more on pensions than what was spent in 2012.

Pensions of all sorts have improved, including those of service pensioners. Those who lost their retirement pensions when their marriage partner died now receive a full widows’ pension. Pensioners who suffered injustices because of mistaken decisions made by previous governments, for example those who worked in Libya, at the dockyard, in disciplined forces, self-employed and part-timers, have all seen improvements through ad-hoc measures. Other ad-hoc measures included accrediting women who could not work because they were taking care of young children, or young persons who were studying.

The PN’s shambles in the pensions sector knew no limits. Its governments denied thousands of pensioners of increases in pensions which were guaranteed by law. The Labour government carried out an extensive revision of pensions and paid pensioners the arrears they were due. Another pocket of pensioners who had a raw deal were those who had paid social security contributions before reaching the age of 19, and yet got nothing in return, and those who had missing contributions. The government started paying an annual bonus to the former and allowed the latter to pay their missing contributions up to five years. Thousands became eligible to a higher pension.

The utter lack of regard for pensioners was crowned by the PN government’s taxation of pensions. In contrast, the Labour Government introduced a measure that exempted pensioners over the age of 61 from paying tax on their pension income or incomes up to the equivalent of the maximum two-thirds pension plus bonuses.

The Labour Government further introduced fiscal incentives for persons who invested in private pensions, so much so that today we have almost 10,000 people who are building a secondary nest-egg for when they retire. For those who have already retired, the Government started offering Savings Bonds with a preferential interest rate. 

The Government introduced a measure that exempted pensioners over the age of 61 from paying tax on their pension income.

The paucity of the PN’s so-called proposals is seen from the fact that two of the proposals are, in fact, one proposal. It says that it would “use alternative systems for workers to have more than one source of pension at retirement age as is done in foreign countries” and “incentivise workers to save and invest in schemes with the necessary guarantees to have an adequate pension when they retire from work”. The second is a way of implementing the first. In any case, as already pointed out earlier in this article, the alternative was introduced by the Labour Government years back.

Another PN proposal is to ensure that no pension is lost due to an injustice. Rich from a party that committed so many injustices, most of which have already been corrected by the Labour Government.  The PN also proposes to improve the cost of living mechanism (COLA). Apparently, it is not aware that this is already being discussed within the Malta Council for Economic and Social Development, or if it does, it is trying to get credit for something being done by others.

What remains is its so-called proposal that it would see to it that the current pension system is improved so that it remains sustainable and reflects the demographic forecast for the next 50 years. The Labour Government did not wait 25 years, let alone 50, to improve the sustainability of the system. In eight years, it did what the PN did not do in 25 years, by growing the labour force to such an extent, including by the unprecedented number of working women, that it has achieved a significant improvement in the so-called pensions replacement rate.

In fact, Malta is expected to see the highest rise in pension generosity across the EU and is on a path to become the second most pension-generous Member State. This defies the current trend across Europe, as the European Commission projects a 9% decline in the generosity of pensions by 2070. This was confirmed recently in a comprehensive report on the future of public pension systems, known as the Ageing Report. 

The Commission has calculated that the average replacement rate, which “expresses the average new pension as a share of the average gross wage at retirement”, in the EU will decline by 9%. As a result, while pre-COVID the average pension amounted to 46.2% of the average gross wage at retirement, by 2070 in the EU this will go down to 37.5%. This means that relatively speaking, pensions will become 20% less generous in Europe over the next decades.

On the other hand, the Commission sees that Malta will buck the trend. Instead of seeing a 9% decline in the replacement rate, in our country the rate will increase by 9%. Thus, while at present Malta’s pension generosity, at 48.4%, is just above the average EU value of 46.2%, by 2070 Malta’s pension generosity will become the second highest in the EU, just below Luxembourg. Instead of becoming 20% less generous as in the rest of the EU, in Malta pensions will become relatively speaking nearly 20% more adequate.

The PN truly cannot be trusted to improve pensions when it cannot even understand how Labour has changed beyond recognition the sad legacy it inherited from previous PN governments. No doubt, the forthcoming budget will continue to address pensions adequacy and sustainability.

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