COMMENTS ON COUNTRY REPORT MALTA 2020

COMMENTS ON
                       COUNTRY REPORT MALTA 2020
             (Commission Staff Working Document SWD (2020) 517 Final)

                            compiled by Gaetan NAUDI
                  National Association of Pensioners (MALTA)

A – GENERAL
According to the observations made by a recent IMF mission to Malta, which were made
public in February 2020, Malta’s economic growth, although strong, is “gradually
reaching cruising speed” and it is now increasingly dependent on domestic demand. In
order to continue experiencing the strong economic performance of past years, including
high GDP growth, low unemployment and strong fiscal buffers, the country needs to face
and address a number of key challenges. (Times of Malta, 15 February 2020) The
following comments on the European Commission’s Country Report on Malta need to be
seen too against this background of the current state of the island’s economy.

B – PENSIONS AND FIGHT AGAINST POVERTY AND SOCIAL EXCLUSION
The time-worn debacle of pension adequacy and sustainability persists to the present
day. The Country Report attributes the projected surge in pension costs in the main to
“… the relative increase in the number of pensioners compared to those of working age”,
commenting additionally that “indexation rules in place will go some way to containing
pension outlays.” (Page 22 of Country Report) The accompanying footnote to this
comment explains this reduced pension expenditure to the rule that pensioners born after
1 January 1962 will see their pensions indexed by a factor corresponding to 70% of the
increase in the national average wage and 30% to inflation, whereas their older
counterparts (those born till 31 December 1961) have their pensions augmented at a flat
rate corresponding to the announced cost of living increases. The highest contribution
paid under this system was linked to a Maximum Pensionable Income, which also formed
the base for the maximum Two Thirds Pension (TTP) payable under the Social Security
Scheme.

In my view, this reasoning that the introduced indexation rules can contain pension
expenditure in the medium to longer term is off the mark because the benefits payable to
elder pensioners in practice work out to much less than the cost of pensions awarded to
retirees born after 1 January 1962. When the Two Thirds Pension came into being on 21
January 1979, it replaced the flat rate of National Insurance Pension till then payable to
insured persons with a pension linked to the pensioner’s former salary or net income on
retirement. The higher costs for payment of the Two Thirds Pension were, at least in part,

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to be covered through a corresponding change in the Social Security contribution, from a
flat weekly rate to a percentage of the person’s employment income (currently standing at
10% for employees and 15% for self-employed).

A Pension Reform Working Group, formed in 2007, set out to try to tackle the adequacy
as well as the sustainability of Social Security pensions. It created then the (in)famous
red line of entitlement to a maximum pension of € 316 weekly (€ 24.650 yearly) as of
2027 for individuals born on the 1 January 1962 or later, meaning a full € 73 per week
that pensioners born before this date actually draw (€ 12.635 annually), even though all
pensioners paid or continue to pay the highest applicable rate of Social Security
contribution throughout their working life. This discriminatory classification between
older and younger pensioners shortchanges the elder category (who are seeing first-hand
how the purchasing power of their lesser pension is being continually nibbled into) in a
way that it perpetuates a social injustice and shows lack of solidarity between
generations.

The Country Report furthermore states that “to address the adequacy of pensions, the
government increased pensions beyond the regular cost of living adjustment index.”
(Page 22 of Country Report) These periodical increases (typically of a flat € 2 per week)
that Government is awarding to mitigate the burden of insufficient pensions are being
criticized as being only short-term stop-gap solutions which will not suffice to achieve the
desired results of guaranteeing a regular income flow for pensioners who, after having
contributed to the country’s economy and welfare in the best way they could throughout
their years in employment, need to conduct a decent quality of life during the final stages
of their lifetime. To add insult to injury, the anomalous inequalities that exist between
different categories of pensioners remain unaddressed and unabated.

Another persisting grave aberration of pensioners’ rights concerns those receiving a
pension from their former employer (called a ‘service pension’ in Malta), who continue
to be denied payment of a full Social Security Pension equivalent to the contributions
they had regularly paid throughout their working life. True, a system is in place whereby
a handful of these pensioners become eligible for this full payment every year by a
government-introduced recalculation of their service pension. However, if this practice is
maintained for the future, the recipients of the higher service pensions in payment will
only become entitled to the full State Pension due to them after many more decades to
come. By that time, most of them would probably already be resting in peace, unjustly
deprived for so many years of their rights.

Optimistically – but not so realistically perhaps! – the EC document states that “a broader
review of the pension system is expected in 2020 when the Pension Strategy Group set

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up in 2018 is expected to publish its report.” (Page 22 of Country Report) Pensioners’
associations representing retired employees from different sectors of the Maltese
economy are however by and large sceptical that any equitable resolution of the current
anomalies in the pension system can result once and if this review is made public, be it
this year or later.

Although the number of persons at risk or social exclusion in Malta is reported to be
decreasing, the figures pertaining to pensioners categorized amongst the lowest earners of
society and so classified as being at risk remain high. It is correct to say that “the ceiling
on which income from pensions is exempted from income tax has been raised” (Page 35
of the Country Report) but, as the Report further concedes, this is not deemed to be
enough and has resulted in pension adequacy lingering as a major hurdle yet to be
overcome.

The note in the same paragraph of the Report mentions, the statement that the
Government, in an attempt to address the inadequacy of State pensions, awarded “an
additional allowance of €4,50 per week for all pensioners, including the cost-of-living
adjustment” is in substance correct: however, when shorn of its frills, the real increase to
pensioners – let us call it an an ex gratia payment – was of only € 2,17 weekly,
considering that the cost-of-living adjustment is awarded by law to everybody as
recommended yearly by the Malta Council for Economic and Social Development.

C – EMPLOYMENT

Malta has an ageing population, with 60+ citizens constituting one fourth of the Maltese
population. The Country Report rightly states that “2019 Eurostat population projections
envisage a faster population growth for Malta than previous projections due to higher
projected migration flows.” (Page 22 of Country Report) The Report continues saying
that “the share of companies reporting labour shortages as a major factor constraining
their activity is among the highest in the EU and has increased from 4,2% in 2013 to
38,1% in 2018. Difficulties in finding and retaining specialised skilled workers remain
one of the main challenges expressed by employers.” (Page 29 of Country Report) The
resort to the importation of foreign workers is, in some sense, a plausible short-term to
medium-term solution to address this manpower dearth.

In this scenario, it is equally true, as Government spokespersons have often confirmed,
that revenue accruing to State coffers from increased Social Security contributions paid in
by imported foreign workers will be applied to complement Social Security contribution
revenue in relieving escalating pension costs. However, as the IMF mission also pointed

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out in its recent assessment of Malta’s economy, the country faces a major challenge
because of the infrastructural pressures that the inflows of foreign labour are creating,
with tens of thousands of foreign workers having been added to the population over past
years, whilst more are anticipated to come to the Island in the near future. (Times of
Malta, 15 February 2020)

One must also remark that population density in Malta (1376 persons to each km 2) being
already one of the highest in Europe, the continued influx of foreign workers – who
normally only stay for around two years or less working on the Island, to be continually
‘replenished’ from one year to the next with other foreign employees – is exacting the
transportation and housing infrastructures in the main beyond the acceptable limit. The
dependence of pension outlays on these intermittent movements of foreign contributors is
considered to be dangerous, and more long-term measures to guarantee pension benefit
payments need to be identified.

(One must mention too, as an added corollary to this argument, that the local population
is feeling the pinch of abnormally crowded public transport services and other constraints
to the country’s infrastructure with the influx of both foreign workers as well as migrant
flows from third countries. At present, persons over 75 years are entitled to free use of
public transport services, and the promise to have these services fully free for everybody
in the coming years raises eyebrows at the comfort or otherwise of these rides in the
future.)

According to Eurostat, in 2018 Malta registered the second-highest gender pension gap
(46%) in the EU. (Page 30 of Country Report) This gap has widened steadily since 2013,
when it stood at 27%. (Times of Malta, 21 February 2020) Official sources attribute this
widening gap to one of the measures taken by government to help women, especially
those born between 1952 and 1961, to earn a small pension in spite of their having
insufficient paid contributions. (Since only women receiving a retirement income are
taken into account in the statistics, those receiving this small pension reduce the average
per capita pension of women and thereby widen the gap.) Gender equality experts
however explain that the gender pension gap is the sum of cumulative inequalities women
face over the course of life. The lower pensions enjoyed by women are also owed to the
fact that they are related to the gender pay gap since fewer females make it to senior
management roles – although this situation is improving – and therefore the lower
remuneration, the missed opportunities for better pay in top positions, as well as the lower
average number of years at work on which their contribution record is worked out all
have an effect on the pension gap. (Page 30 of Country Report) One leading Maltese
academic has called this phenomenon as “the feminisation of poverty”. (Times of Malta,
21 February 2020)

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The employment of disabled persons remains “one of the lowest in the EU.” (Page 31 of
Country Report) The last household census carried out in 2011 revealed that 50% of the
disabled population in Malta were aged from 61 years upwards, and they formed 1 out of
every 6 of the aged population aged 61 or over. The main source of income for these
disabled persons (41,7%) has been declared to be from their retirement pensions.
(‘Demographics, Income and Intimate Relationships’ presentation by Amy Camilleri
Zahra – academic and motivational speaker)

D – HEALTH AND LONG-TERM CARE
“Public expenditure on health care is projected to increase considerably due to ageing.”
(Page 22 of Country Report) This is a reasonable prediction considering that “Malta has
one of the highest life expectancies (82,4 years on an average) in the EU. It is also true,
as the Country Report states, that “a high rate (70%) of family doctor visits carried out in
private clinics (OECD/European Observatory on Health Systems and Policies 2019) is the
main reason for high out-of-pocket outlays. Despite this, health care appears well
accessible, as self-reported unmet needs for medical care are very low.” The practice of
people seeking medical advice in private clinics is quite popular, leading to increased
cases of follow-up treatments and interventions in State Hospitals especially for elderly
persons who are no longer or who have never been covered by private insurances.
Moreover, most imported foreign workers invariably seek treatment in State Health
Centres and Hospitals, augmenting the pressures on the Health Service.

In spite of a shortage in the nursing complement (necessitating the engagement of foreign
nursing staff as is evident from any visit to local hospitals and clinics), the State Health
Service generally performs well. Although waiting queues for specialists have declined,
those for certain disciplines have remained, and in some cases become slightly lengthier.
The testing for and subsequent isolation of Covid19 patients is naturally exacting the
depleted medicals to their very limit, so much so that health personnel have swiftly
become the nation’s modern heroes – not only here but everywhere.

Long term care in Malta is a slowly growing demand, and Government has been
addressing this in part by contracting out, as the Commission document states (Page 23 of
Country Report), long-term care beds in private nursing homes and institutions with
success.

Malta has made limited progress in “ensuring sustainable transport and reducing traffic
congestion” and there has been no progress in “ensuring long-term sustainability of
public finances by addressing shortcomings of the pension and healthcare systems”.
(Page 4 – Executive Summary) This of course is a matter of deep concern for the aged
and the ageing generation. Malta is the most car-dependent nation in the EU, yet has the

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shortest commuting distances. The country holds the record of the highest vehicles per
capita with the lowest occupancy rates. Around 30 new cars are registered and come out
in Maltese streets every day. The air pollution level, which in Malta’s case is directly
linked to cars, places the country among the worst-affected in Europe. Air pollution is
also the cause of many illnesses, such as heart disease and stroke, with drastic results on
the health mostly of the elderly, who continue to feature in many Health Communiqués to
as ‘the vulnerable of Maltese society’.

E – OTHER SOCIAL PROBLEMS AFFECTING THE ELDERLY

‘Stop thinking that cheques can cure people, because you do not throw money at social
problems to resolve them, but you have to address the root causes,’ a reputed Maltese
academic told the Permanent Committee on Social Affairs of the Maltese Parliament in
June 2019. 2 out of every 5 Maltese suffer from loneliness, whether emotional or social.
46.000 people in Malta do not feel positive about their life, and some 186.000 Maltese
reported experiencing some form of loneliness. In a nationwide survey, from a
breakdown of calls between 2006 and 2019 to a local Support Line, callers were more
likely to call because they felt lonely than to discuss other problems. With self-
quarantine, quarantine and self-isolation measures currently being taken because of
Covid19, this feeling of loneliness is becoming more pronounced and more widespread
amongst all age groups, but certainly more seriously amongst older persons.

                                                                           16 March 2020

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