Source: Audrey-Ann Cassingena¸ PKF Malta
Published on The Accountant¸ Autumn 2011
This is not an article on how to defuse mines and booby traps in Iraq or Libya as one may remember when watching the film “Hurt Locker” but a reality check on how our nation needs to brace itself to meet the challenges of a pension deficit. It is not a subject that should lead us to cross party loyalties; neither should one take advantage of the delicate situation by delving in partisan politics. However it is a fact that various stakeholders have been watching with awe the deterioration in the pension fund (which does not exist) and the dire consequences for future generations of claimants. To address the issues on this important topic PKF is keeping an eye on what the business leaders say about such an important subject. There was a position paper last year issued jointly by the Malta Chamber of Commerce¸ Enterprise and Industry and the Malta Hotels and Restaurants Association. In brief it talks about the need to remedy the shortfall by considering the options of a mandatory second pillar and a voluntary third pillar. They feel that there are a number of economic benefits associated with the introduction of the third pillar pension. In their own words¸ it increases the income of individuals once they are past retirement age and alleviates the financial burden on the social security system. Another advantage is that it stimulates private savings and creates business activity in the Financial Services sector. Obviously the position paper is cautious on the implementation of the third pillar and proposes safeguards. One important facility is that it is fully transferable to the second pillar and naturally the government would issue adequate fiscal incentives to reduce the burden on policyholders. The comments on the second pillar were favourable as this helps the sustainability of the existing system but the two organizations are not prepared to consider it unless precise details are made available to allow an exact calculation of the potential impact on the cost of labour to businesses.
One hopes that the Budget for 2013 will seriously tackle this issue and proposes certain measures aimed at economic expansion as only this can mitigate the pain of further deductions from worker’s pay packets. All this reform has to be seen in the framework of what the EU is recommending to us in order to improve our economic future. Therefore we are harkened to reduce the 2011 deficit and ensure an immediate reform to secure the sustainability of the pension system by acceleration of a gradual increase of the retirement age and linking it to life expectancy. In Malta¸ the population of ‘Baby Boomers’ will rapidly reach the retirement age¸ combined with a rising life expectancy; in contrast¸ the birth rate has been in decline for several years. To withstand these demographic realities and protect competitiveness the government will have to take drastic measures¸ such as a decrease in taxation¸ higher pension benefits and increased efficiency in the public sector. To conclude we invite you to join our INTERACTIVE FORUM to keep adjourned with what is happening on the topic and express your comments/suggestions with an aim to enhance awareness on a solution to solve the pension conundrum.