The Pensions Reform – GRTU focuses on the self-employed and possible effects on small businesses

The Pensions Reform Group has put forward a proposal which aims at retaining the current retirement age while incentivizing later exits from the labour market. The Reform Group has ruled out increasing social security contributions and compulsory second-pillar pensions. Amongst the major recommendations in the proposal is that permanent pension top-ups of 2% (for 62 and 63 years) and 4% (for 64 and 65 years) would be applicable to those who remain in employment without claiming a pension prior to 65 years of age.

Throughout the past weeks GRTU has been active in the consultation process. A MCESD meeting with the Minister for the Family and Social Solidarity Hon Michael Farrugia was held last week where the Pensions Reform Group outlined the main points of the reform proposed. This week GRTU was also present for a meeting with the Opposition Deputy Leader Hon Mario de Marco whereby social partners were invited to give their feedback. GRTU has also organized an information session for its members specifically for the Pensions Reform Group to discuss the proposals with SMEs and self-employed.

GRTU has sustained that it is evident that demographic realities imply that reforms in the pension system are necessary if we are to have fair and just pensions which are also sustainable for the years to come.

Furthering incentives to motivate more workers to remain in the world of work and acknowledging women’s career breaks in terms of pension credits due to child-bearing, are amongst the positive initiatives that GRTU welcomes. GRTU however raised concerns of specific sectors which are perhaps more labour-intensive whereby this would be more difficult in reality. This therefore implies that in practice it would be very difficult to have for instance a gas distributor or construction worker remaining in the labour market at a rather old age. This may also be of concern to employers who might have workers who decide to remain within the labour market but due to health and age reasons would have their productivity and performance reduced.

GRTU has always proposed that funds collected for pension purposes should be invested in a national fund which is specifically set for pensions and not towards the general consolidated fund of government. Government would have to anyway sustain this fund but it could be used to invest safely. It would be monitored by social partners.

One of the recommendations put forward by the Pension Reform Group addresses part-time work whereby it is being stated if a part-time worker is in fact working a full 40-hour week even if with more than one employer, s/he and the respective employers need to pay the respective NI and enjoys full contributory entitlement. This will be an additional cost to employers in specific sectors and may also have administrative concerns in terms of implementation, particularly due to the monitoring over the number of hours worked per week with different employers.

At the consultation meetings held, GRTU President Paul Abela has specifically queried as to what is in it for the self-employed. It is important to clarify and inform how the pensions system works, the existing categories and what pensionable entitlement one would have when reaching retirement. There is perhaps nothing in the reform which is addressing the self-employed directly. Self-employed persons would have invested, generated work and taken risks through their businesses throughout their working life whilst contributing.

The third pillar needs to be incentivized with serious measures for those who can sustain themselves through it. There are different practical ways how this can be done. GRTU President Paul Abela exemplified through for instance the pig breeders. These have contributed to the economy for decades but the Maltese economy has changed in a way that this line of work is dying a natural death. It would make sense that at least the land which the pig breeders had invested in would be allowed to be used for rental purposes since their investment would serve as a form of private income throughout their retirement. Another practical measure would be setting incentives for self-employed persons who would have opted to invest in a property for the running of their business without having in any way received support from the government. This property can then be used for renting purposes when the self-employed person is no longer in business. That income is a form of pension for the retired self-employed who would have invested himself throughout his working days without having gone for business support or other resources from government and would have contributed the national insurance throughout his work. This should therefore have some form of tax exemption or fiscal incentive even though it should also be capped.

The document hints at moving towards equity release as a form of adequate alternative for individuals who would be asset-rich but perhaps cash-poor. If this is the case we need to see that there are adequate genuine persons through set systems that can be trusted, that guide such individuals. Most of them would be ageing and not in any way experienced with the property market. One needs to ensure that the life-savings (in the form of property) reap the maximum potential for them and is not taken advantage upon by others. This also leads GRTU to extend its appeal to banks to consider persons of a certain age who might need financing for specific projects. The reality is that these may be asset-rich and that life expectancy is increasing. If we are heading towards this direction it cannot be that such persons find all doors closed to acquire financing.

All in all GRTU sees that first pillar pensions need to be sustained in order to ensure a fair retirement for all sectors in society. At the same time incentives have to be made to encourage other modes for pensions. Diversification and incentives can lead to sustainable pensions. GRTU is collating feedback from its members and will be putting forward it formal feedback within the deadline set for the consultation.

The full report, recommendations and related documents can be found on http://bit.ly/1OjRgwH. Kindly send your feedback to GRTU on by latest 26th July 2015.