Pension Reforms - The Times
Pension reform plans unveiled
The retirement age will be raised gradually to 65 under pension reform plans unveiled yesterday but it is still unclear how and when a second pillar pension will be introduced for which taxpayers will contribute.
Private pension schemes will remain a voluntary option.
Addressing a press conference at his office in Valletta, Prime Minister Lawrence Gonzi said the Bill on pensions will be presented to Parliament by June.
Current pensioners, or those who would have turned 55 by January 1, will not be affected by the reforms. Working women over 55 will have the right to work till 61 instead of 60.
Education Minister Louis Galea said that under the new system, those who reach pensionable age but opt to continue working will be entitled to a full pension.
The retirement age for employees aged between 46 and 55 shall increase gradually depending on their age.
Workers aged 51 to 54 will retire at 62 while those between 48 and 50 on January 1 will retire at 63. Those between 46 and 47 will retire at 64 and those who will be 45 or younger will reach pensionable age at 65.
Flexible retirement is also an option but workers will not be entitled to a full pension if they choose to stop working before 65.
The government will continue to guarantee a national minimum pension under the new system, Dr Galea said. However, this will reflect 60 per cent of the national median income and will not be four-fifths of the minimum wage as it is today. The rate will be revised periodically according to inflation and depending on how the median income increases.
In the case of the two-thirds pension, the contribution period on which this is calculated will rise from 30 to 40 years.
Those who are 25 or under on January 1 will need an accumulation period of 40 years. This will decrease by a year for every year of a person's age beyond 25. Therefore, a 30-year-old will have an accumulation period of 35 years and a 35-year-old will have 30 years.
The pension for those workers who will be 46 years or more by next year will be calculated on the best three consecutive years of the last decade of their working lives.
For younger workers, the pension will be based on the best 10 years of the last 20 of their working lives, whether they are employees or self-employed.
The maximum capping of two-thirds at Lm6,750 will be augmented by a cost of living increase until 2010. After that, the capping will increase to Lm9,000 by 2014 and will be revised every five years.
Parents who stop working for a brief period to raise children will not be penalised. The law will also provide leeway for those who wish to study during a particular period of their working life.
The government does not feel it can impose heavier burdens on workers and employers by increasing the contribution percentage for the so-called second pillar pension.
Money collected under the second pillar will be invested in funds administered by financial operators to ensure an adequate standard of living for pensioners.
"We intend to work out how we can take part of the 10 per cent already forfeited and invest it in a second pillar pension rather than increasing the national insurance contribution, given the country's economic situation," Dr Gonzi said.
He added that if this turns out to be impossible, the supplementary pension will be introduced on a mandatory basis at a later date when the economy is in better shape.
"It all depends on the government's fiscal targets, since reducing one per cent from national insurance contributions means reducing the government's revenue," Dr Gonzi said when pressed about the timing of the second pillar.
Certain tax incentives were also being contemplated but the government was not making them public as yet.