David Spiteri Gingell -Chairpersn
i. Terms f Reference: (i) (ii) (iii) (iv) (v) (vi) T review all wrk carried ut by successive administratins n pensins refrm T review internatinal trends n issues and slutins prvided fr pensins refrm T identify the challenges facing the Natin t secure a pensins system which is bth adequate and sustainable T review the current pensins system in terms f retirement pensins thugh excluding pensins falling within ad hc ccupatinal pensins systems such Service Pensins, Armed Frces f Malta, etc T submit in terms f (iv) abve prpsals and recmmendatins fr Gvernment s cnsideratin fr a pensins system that will secure adequacy and sustainability fr future generatins T undertake apprpriate mdeling and simulatins n the recmmendatins presented in (v) ii. Presented the Reprt t the Prime Minister n 5th Nvember 2004
The Need fr Change i. Adequacy f pensins f future pensiners will be undermined ii. Changing demgraphics generating pressures n sustainability
The Underlying Principles f Change i. New pensins system and the Natin s fiscal strategies cannt be assessed independently f each ther ii. iii. iv. Cntinued prevailing belief r perceptin that the prvisin f a pensin is the sle respnsibility f the State must be challenged Pensin schemes need t be as self cntained and transparent as pssible Pensins refrm is necessary irrespective f adequacy and sustainability t accunt fr new nrms and behaviurs v. Individuals shuld have the individual chice t invest t attain a pensin that is beynd the statutry entitlement
The Path t the prpsed White Paper December 1997 MCED Ren Camilleri cmmissined reprt February 1998 Frum fr a Better Ecnmy Value 2000: Fcusing Resurces fr Superir Cmpetitin August 1998 Watsn Wyatt Ltd reprt June 2001 NCWR Galdes reprt Octber 2003 NCWR Schembri reprt December 2003 Dalli Guidelines March 2004 Wrld Bank reprt
The Challenges Ppulatin Aging and Pensins Birth Rates Life Expectancy Ppulatin Aging and Health Expenditure Emplyment Participatin Changing Gender Rles Ecnmic Perfrmance and Wealth Adequacy Financial Sustainability Educatin and Life Lng Learning Savings
2050 Prjected Demgraphic Structure f Maltese Ppulatin till 2050 68.8 31.2 Returned Emigrants since 1975 and 2003 2035 72.5 27.5 2025 73.3 26.7 2020 74.3 25.7 2015 76.4 23.6 2010 78.4 21.6 2004 81.5 18.5 2003 82 18 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 59 and under 60 and ver N f Emigrants 3500 3000 2500 2000 1500 1000 500 0 2957 2472 2261 1678 2289 1753 1644 1193 1052 654 700 622 365 1124 936 858 722 820 837 761 621 399 453 349 339 450 472 382 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 Year N f returned emigrants Live Births between 1944 and 2003 Rate f Ppulatin 45 40 35 30 25 20 15 10 5 0 39.3 32.9 27.2 26.1 17.6 19 16.3 17.6 15.9 15.1 12.44 11.16 10.03 1944 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2003 Rate per 1000 f Ppulatin
Emplyment Licences t Expatriates Average Emplyment Licences 2500 2000 1500 1000 500 0 2347 2256 2232 2153 2087 2081 1980 1982 1817 1875 1662 1274 1227 1079 1023 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year Life Expectancy Prjectins fr Persns wh are 60 years and Over 30 2000-2002 2005-2007 Percentages 20 10 2010-2012 2015-2017 2020-2022 0 60 yrs men 60 yrs wmen 70 yrs fr men 70 yrs fr wmen 80 yrs fr men 80 yrs wmen 90 yrs men 90 yrs wmen 2025-2027 2030-2032 2000-2002 17.9 22.1 10.9 14.2 6.1 7.9 3.2 3.9 2005-2007 18.3 22.8 11.2 14.7 6.3 8.2 3.3 4 2010-2012 18.8 23.4 11.6 15.2 6.5 8.5 3.4 4.1 2015-2017 19.3 24 11.9 15.7 6.7 8.8 3.5 4.2 2020-2022 19.7 24.5 12.2 16.2 6.9 9.1 3.6 4.3 2025-2027 20.2 25.1 12.5 16.6 7.1 9.4 3.7 4.4 Years fr men and wmen
SLH Mean Cst per Persn by Age 900.00 800.00 700.00 600.00 500.00 Lm 400.00 300.00 200.00 100.00 0.00 >1 1 t 4 5 t 9 10 t 14 15 t 19 20 t 24 25 t 29 30 t 34 35 t 39 40 t 44 45 t 49 50 t 54 55 t 59 60 t 64 65 t 69 70 t 74 75 t 79 80 t 84 85 t 89 90+ Age Grup
Females remaining in the Labur Frce Percentage 80 70 60 50 40 30 20 10 0 74.7 15.1 5.2 5 0-9 10-15 16-20 21-30 Years f Emplyment Age grup %
Emplyer and Self-Emplyed Persns / Emplyee Cntributins Against Ttal Benefits Paid 1998 1999 2000 2001 2002 2003 Class I Cntributins 81,058,000 85,731,000 95,103,639 107,268,046 108,400,970 125,644,558 Class II Cntributins 9,400,000 10,471,000 12,956,316 12,124,576 12,388,651 Cntributry Benefits (129,387,097) (136,230,636) (141,693,149) (149,301,451) (154,620,554) (161,697,055) Deficit (38,929,097) (40,028,636) (33,633,194) (29,911,829) (33,830,933) (36,052,497)
Savings Rati % Rate f Savings Ra n 18 16 14 12 10 8 6 4 2 0 8.87 9.95 1985 1986 15.12 1987 15.35 15.61 15.81 16.85 13.72 12.6 12.29 1988 1989 1990 1991 1992 1993 1994 10.85 9.75 9.68 9.22 8.09 1995 Year 1996 1997 1998 1999 4.35 2000 2.03 1.3 2001 2002
Instruments available fr the Refrm f the Pensins System i. N Change ii. Increase in taxatin r Scial Security Cntributins iii. Increase in savings: vluntary r mandatry iv. Changing the frmula f the PAYG System v. Rising the statutry retirement age vi. Increase labur frce vii. Hybrid f abve
The Prpsed Pensins System: Establishing a Cnceptual Framewrk - Retains PAYG (First Pillar) Directed t Guarantee a decent standard f living - Intrduces the Principle f Self-Help (Secnd Pillar) Directed t enhance ne s standard f living - Intrduces the Principle f Chice (Third Pillar) Directed t cmplement ne s pensin incme
The New Pensins System Health Fund Cntributin frm First Pillar t be determined First Pillar Pensin - Mandatry - Pst Retirement Pensin Incme Retail Price Indexed - Minimum Pensin Guarantee indexed t a fair mechanism against inflatin ersin - 40 Year Accumulatin Cntributin Time Based Perid (Implemented n a staggered basis) - Tw-Thirds f basic wage up t a MPI Ceiling - Current MPI but indexed t RPI (Lm6,750) - T cnsider Credits fr Life Lng Learning - T cnsider credits fr Parental Respnsibilities related t Child Bearing and Raising - Basic Wage Cntributins Base - Capped Cntributin and will increase in prprtin t MPI - Retirement Age Based - Optin fr Disincentivised Gradual Retirement Transparent Pensins Accunt Cmpliance Based N changes t PAYG Cntribtuin Prvides a Decent Standard f Living Secnd Pillar Pensins Scheme - Mandatry by 2010: but intrduced in 2006 n a vluntary basis - Final decisin n Mandatry t be taken in 2009 fllwing first peridic pensins system review - Cmmn Yet Flexible framewrk - N Opt Out - Prtable - Tax Free Cntributins - Capped % Incme Tax n maturity f fund - Part t be paid as Lump Sum n Maturity and main t be placed in Annuity t prvide annual pensin Regulatry Safeguards Enhances the Standard f Living Third Pillar Pensins Scheme - Vluntary - Cntributin Nn-Taxed subject t a Capped Value - Incme Tax n PAYE rate upn maturity Gverned by MFSA Subject t Special Funds (Regulatins Act) Cmplements the Secnd Pillar Pensins Scheme CONTRIBUTOR Statutry Retirement Age t be 65 years with implementatin staggered by age chrts Ability t earn uncapped THE incme PENSIONS whilst benefiting WORKING frm First Pillar and GROUP Secnd Pillar pensins subject t payment f cntributins
The New Pensins System: Impact n Emplyers Directed t increase wmen participatin and retentin in the labur market Directed t retain experience and hard earned intellectual capital in the labur frce Directed t signal imprtance f natinal direct actin t attain a knwledge based ecnmy Avids radical slutins and seeks staggered and phased implementatin t minimise ecnmic and scial cnvulsins Maintains current First Pillar Class I and Class II cntributins
The New Pensins System: Impact n Emplyers Recgnises changes in wrk nrms and behaviur and seeks changes t Part-Time regime t facilitate atypical emplyment and bring such wrkers int the frmal ecnmy Remves the difference f the calculatin perid between emplyees and the self emplyed Recgnises that the Secnd Pillar Pensins Scheme will have an impact n cnsumptin and cst f prductin and prpses initial intrductin n a vluntary basis
The New Pensins System: Impact n Emplyers Vluntary intrductin f a Secnd Pillar Pensins Scheme is subject t strategic chice by: - individual: save t day t have better cnsumptin pattern in retirement - emplyer: mdel emplyer Recgnises that the Secnd Pillar Pensins Scheme will impact dispsable incme and mitigates this by the intrductin f a cnversin scheme fr endwnment plicies and tax incentives fr savings
The New Pensins System: Impact n Emplyers Securing adequacy by channelling f dispsable incme tday t savings int Secnd Pillar Pensin Scheme means deferral f expenditure frm tday t the future : critically imprtant t the macr ecnmy in view f an aging ppulatin Securing sustainability by retaining deficit f the pensins system t 2% f GDP allws Gvernment t channel funds t prductive investment and the resulting multiplier impact n the ecnmy as against the servicing f structural csts
Cntact Details The Pensins Wrking Grup c/ MITTS Ltd Gattard Huse Natinal Rad Blata l-bajda HMR 02 Email: david.gingell@gv.mt Tel N: 21234753