David Spiteri Gingell

Management Consultant

David Spiteri Gingell has worked in government, the private sector and overseas, and has had the privilege of being involved in a number of national reforms in different policy areas locally – including ICT, public administration, energy, pensions and research and innovation.

The case for a work place pension (Part 1)

Tuesday 13th September 2016

The 2007 reforms acted, unequivocally, as a break on a pension system which, had it remained unchanged, would by 2050 jeopardise Government’s ability to provide an adequate pension to future pensioners. The reforms in 2015 sought to strengthen the adequacy of the income of current pensioners receiving a low pension income and who are at risk of poverty.

This was seen as an important step given that current pensioners (people born on and before 1951 as at 1st January 2007) where excluded from the 2007 reforms. The political direction at the time was that significant reforms to the pension architecture were to be limited to future pensioners – specifically persons who were born on and after 1952 as at 1st January 2007 – whilst reforms affecting pensioners were to be introduced through budget measures. Both the 2007 and 2015 reforms sought to strengthen the sustainability of the pension system by securing a fair balance between contributions and benefits over generations.

A number of stakeholders argued that the 2015 reforms sought primarily to strengthen the sustainability of the pension system rather than providing for a far more generous pension system that would further improve adequacy. The truth, however, is that a pension system can never deliver a degree of generosity that it cannot afford over the long-term. Sustainability and adequacy are two sides of the same coin. One would have thought that the harrowing events occurring in Spain, Italy and Greece, which we continue to see unfolding quasi a decade later since the 2008 crisis, would have focused the mind in this regard.

The fact that the continuing unfolding events in the eurozone generally and Southern Europe specifically have not, is a concern in its own right. The reasons behind this are various. Three are discussed. Many a person continues to believe that the State owes them a ‘free’ living – throughout their life and during retirement. Many people believe, by right that Government should provide them with a pension income, irrespective of the contributions paid (or not paid) that safeguards the quality of life enjoyed during employment. A legacy of colonial times, further etched by the reticence of the political class to reform electoral winning ‘freebies’ – vide the 50cents (€1.165) co-payment charge introduced by the Sant administration to discourage mis-use and abuse of free medical aid immediately branded by the Nationalist Party in Opposition as a ‘Gvern tal-kalkulator u minghajr kuxjenza socjali’. The resulting consequence is the complete banishment from policy discourse of any form of discussion on co-payment for health benefits.

Absence of knowledge is another reason. Surveys carried out by reform groups, and more recently by University of Malta students, show that the majority of persons believe that the social security pension is sufficient to provide them with an income level that allows them to live comfortably in retirement. Yet many who reach such conclusions admit that they have little understanding of how the social security pension system works. The result is that people make life-changing decisions on the basis of little or inaccurate knowledge – decisions which determine the quality of life they will enjoy during retirement (a phase of life that is ever-increasing; estimated to increase, unisex, by an additional six years by 2060). One of the phenomena in this regard is that such life-time portentous decisions are made by persons independent of their level of income and education.

People are not rational beings – they are subject to behavioural heuristics. People do not think long-term and are myopic and inertial. Research in Malta shows that as people juggle current life cycles with future planning, too often they place the latter on a back burner. With some, though not most, financial security during retirement becomes a priority only once the mortgage is paid and children become independent.

The culture that dictates behaviour to retirement planning in Malta is one that has long been in the making. It is a culture grafted, decade upon decade, on the belief that there is no such thing as self-responsibility and that Government is expected to provide a free lunch irrespective of one’s personal circumstances.

Worse: with specific regard to retirement knowledge and planning it is a culture that Government itself perpetuated. The abolishment in 1979 of personal and work-place pensions, followed by the disdainful neglect shown by Government in introducing the 3rd pension (recommended in 2004 yet for reasons which remain unfathomable introduced only in 2015), signalled that the social security pension alone suffices. The lack of urgency shown by Government in introducing the 3rd pension further accentuated the culture of an absence of self-responsibility for retirement planning.

Imprudently, such positioning by Government was coupled by the stark absence of a holistic and integrated strategy directed to imbue a culture of retirement planning – based on knowledge and trusted information and on an understanding of one’s expected income from one’s state pension, the quality of life desired during retirement, and how gaps, should they exist, are bridged.

Although Government dawdled with introducing ‘no brainer’ recommendations related to a 3rd pension framework and a holistic retirement education strategy, the former is now introduced and a draft national strategy for retirement income and financial literacy launched – albeit by the 2013 incoming administration which re-energised the reforms related to the pension system. The recommendations, however, relating to the introduction of a mandatory second pension where up to the 2013 elections unloved by practically all of the political, civil and social actors in the Maltese polity (with the exception of the financial services industry) and consigned to the dustbin of history – a state of play that changed somewhat with the Nationalist Party, now in Opposition, experiencing in 2015 something of a Damascus moment.