European Trade Union Institute, ETUI.

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Malta

1 October 2017

Malta: second pillar pension again on the political agenda

The Maltese government has announced the introduction of initiatives to encourage employers and workers to invest in voluntary private pensions. This could be a step towards the setting up of a second pillar pension, a long-standing demand of some of the unions. However, other unions stay in favour of non-obligatory third pillar schemes.

There has been a debate in the country, over a long period of time, on the necessity to introduce a second pillar in the pension system, a fund scheme based on contributions from both workers and employers. The notion that reforms were needed to the existing pension system emerged as this was pushed up to its limits. The current first pillar pension is not a funded pensions system, but based on the National Insurance contributions. These contributions are used for several social benefit systems, including the state pensions. The first pillar is thus in principle a ‘Pay As You Go’ scheme with workers paying for the pensions of retired citizens. The possible introduction of a mandatory second pillar led to heated debates about the financial impact, the fiscal incentives and other employment and regulatory questions. The employers opposed its introduction with the argument that a second pillar pension system could increase the cost of labour. As a consequence, the idea was put on ice by successive governments. In June 2016, a special taskforce was set up to study the possible introduction, but the work ended without a clear political follow-up.

The trade union positions were always strongly diverging. Some unions, like the UĦM have been in favour of initiatives that lead to a second pillar. Others have opposed the idea and insisted, together with the employers, on voluntary third pillar measures. If a worker could not afford contributions to a third pillar pension, the worker would at least have the option of not applying for the scheme. In the case of second pillar pensions, there would not be a choice, and the compulsory contribution would have to be paid irrespective of how much a worker earns. Very recently, the General Workers’ Union reiterated its position against second pillar pensions. Instead, the GWU is seeking amendments to the Social Security Act which will see the legislation be split into two separate acts, one for Retirement and Pensions, and one for Social Security and Welfare.

With opposite positions in the acting government, the attainment of a new scheme stayed out of sight. In the run-up to the next elections, the theme has popped up again, with parties expressing their positions. The finance minister has tried to find a way out with a proposal for a system that is based on small sums of money being put into a tax-free expense account, with contributions by the employer and employee. The account should be temporarily, until pensionable age, held by the employer. The system would involve the cooperation between employer and employee. The difference with a second pillar pension is due to the fact that it is strictly voluntary. UĦM welcomed the proposal as ‘a first step towards the introduction of a second pillar’.

Jan Cremers

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