The two main political parties rarely converge on fundamental reforms necessary for the continued well-being of Malta; or when they do agree, they do so by shying away from such reforms so that the status quo is not upset. Both lead to paralysis in the short term as well as burdening future generations with onerous legacies.
Many examples abound. One will suffice. It is priceless listening to the Opposition gripe about the low value of pension income that persons in middle-income groups receive when they retire. Many persons of my age remember the 1980s Nationalist Party’s war cry of ‘Bolla Balla’. Indeed, when the Nationalist Party was re-elected to government in 1987, the National Insurance Contribution scheme was not even 10 years old. It was still immature and open to fundamental changes that could, with minimal social and economic shocks, have secured a healthy retirement income for the baby boomers, Generation X and future pensioners. Not only was the pension system, however, not reformed as promised by the Party in Opposition during the 80s – worse still, it was abandoned.
As the fundamental premises – fertility and longevity – upon which the pension system was designed changed incontrovertibly, core parameters such as the maximum pensionable income – which determines the value of pension income – remained resolutely unchanged as wages increased. The result was a suppressed pension income, the purchasing power of which eroded by inflation.
The key reforms presented in 2004 – that is 12 years ago – to counter suppression and erosion of the pension income rested with the introduction of a mandatory second pension. The political parties failed to find common ground on the need for such a reform directed to ensure that people complement their social security pension with an individual retirement savings nest egg. Or rather, they actually found common ground to take no action. 12 years later, the Nationalist Party has had what I call the Damascus moment. Suddenly, they have woken up to the importance of mandatory second pensions – placing this as a centrepiece of their pension reform proposals. Ill-advisedly, they adopt this position when today it is clear that there are better-designed systems that achieve, with less controversy, the same goals as a mandatory second pension – mainly, automatic enrolment or what is better known as mandatory opt-in voluntary opt-out.
Similarly, both political parties agree that given Malta’s high home ownership, home equity release systems are appropriate policy instruments for current and future pensioners. Home equity release systems not only allow pensioners to release income through their property to improve their quality of life in retirement, such systems also allow pensioners to continue to live in their home and within their community as they do so. It has been, again, 12 years since home equity release was formally proposed as a reform measure. Yet, as recent as last year, the Pension Strategy Group re-emphasised the importance of introducing a regulatory framework for home equity release in Malta.
Nobody, to the best of my knowledge, has openly criticised home equity release as an inappropriate recommendation. To the best of my knowledge, there is general consensus of not only introducing home equity release – which in fact takes place informally as elderly people exchange their homes for tenure in elderly residential homes – but in having home equity release regulated. It is true that home equity release frameworks are complex to design. There is, today, however, over two decades of home equity release regulatory and product design experience in the UK and Europe.
Thus, whilst the Opposition, non-government organisations and constituted bodies clamour for the need for something to be done to raise the level of income of current and future pensioners, as a society we continue to slumber on, despite the presence of reform measures that have long been mooted.
Reforming a pension system is a complex undertaking. They are best compared to an aircraft carrier or an elephant – they take a long time to turn round, and reform measures, in instances, take years to leave their effects. Moreover, given that our pension system is a Pay As You Go System, there is a delicate balance between the needs of current and future pensioners. These require difficult decisions primarily because the interests of current and future pensioners are not the same.
The same can be said with regard to the health, aging, transport and education stipends policy areas – to mention some key ones – for which our political system has consistently failed to agree or act to safeguard the well-being of not only current but future generations.
Crucial and important reforms can only be achieved if they are placed above politics and where the well-being of the collective, future as well as current, are placed at the fore. This can only be attained when the main political parties come together, adopt national solutions and consistently implement them over the long term – too often beyond the five-year horizon that political parties in government place for policy design and implementation.