Far from being a burden on the fiscal budget, Malta’s state pension system stands as a cornerstone of social policy.

Unlike previous Nationalist administrations that relied on austerity to sustain pensions, Labour governments have chosen to strengthen them through sustained economic growth. By raising the national minimum pension and awarding annual increases that exceed the Cost-of-Living Adjustment (COLA), Labour has demonstrated that fiscal policy can serve as a strategic instrument for inclusive and responsible economic management.

State pensions and their sustainability have been widely discussed in recent years. They are one of the main tools of social policy, providing income to older citizens and protecting them from poverty during retirement. Known as Pillar I pensions, they operate on a pay-as-you-go basis, whereby current workers contribute to finance the pensions of current retirees.

Is it ethical to describe them as a burden on the fiscal budget? Of course not. They should instead be regarded as a form of intergenerational fairness. A sign of gratitude towards previous generations for shaping the society we enjoy today.

Are there challenges regarding their funding? Certainly, and these will persist amid Malta’s ageing population, a trend mirrored across other advanced economies worldwide.

Under Nationalist administrations, the funding challenge was addressed mainly through austerity measures that placed the burden on workers and employers. These included increasing national insurance contributions, raising the retirement age, maintaining pensions at frozen levels for long periods, and withholding full annual Cost of Living Adjustment (COLA) increases.

Labour administrations, on the other hand, opted to sustain pensions through economic growth rather than by imposing additional burdens on workers and employers. Among other measures, the national minimum pension has been increased, and annual pension adjustments have exceeded the COLA amount. This approach suggests that Labour administrations view the fiscal budget not merely as an accounting exercise but as a strategic tool for managing the economy effectively.

In 2014, the government launched the Third Pillar Pension Scheme to encourage citizens to save for their retirement by investing in eligible financial products while benefiting from tax credits. More recently, the Ministry for Finance launched a public consultation on the introduction of an auto-enrollment occupational pension scheme.

However, such measures should not be viewed in isolation. Pensioners are also supported by other initiatives, such as rent reform and the stabilisation of energy prices. Once again, these policies are being financed through economic growth rather than by increasing the tax burden on citizens.