A safety net full of holes | Louis Cilia and Carmel Mallia

With the pensions time-bomb ticking away in the background, Maltese pensioners are beginning to wonder whether they’ll live to ever see the fulfilment of the long-promised pension reform. Louis Cilia and Carmel Mallia – president and vice president of the National Association of Pensions – argue that 2027 is too long to wait for

Louis Cilia (left) and Carmel Mallia
Louis Cilia (left) and Carmel Mallia

The National Pensioners Association recently came out with a number of demands, including: that the National Minimum Pension be calculated on an ‘equivalised’ (as opposed to individual) basis; that the long-standing ‘Service Pension’ anomalies are finally ironed out; and that ‘pensions should be related to National Insurance contributions’.. among others. And yet, I was under the impression that several of those demands have already been met. ‘Equivalised pensions’ is one of the platforms of the proposed reform; and aren’t pensions already based on NI contributions? Isn’t that the reason why we pay NI in the first place...?

CARMEL MALLIA: It used to be. That is how the system was designed, and how it used to work... before it was butchered beyond recognition. What happened, in a few words, was that the original pension model was tinkered with it here and there over the years, until it eventually got completely messed up. If we followed the original model, pensions should be calculated on how much NI has been paid. Ours is supposed to be an ‘income-related insurance’ model – which means you pay 10% of your income all your working life, and then receive two-thirds of what you paid, up until the point at which it is capped.

LOUIS CILIA: And let’s not forget that our original model was based on the British welfare system, which was drawn up in the 1940s precisely to ward off poverty on a large scale. 

It was a successful system, too, in that the sort of poverty you saw before the war, doesn’t really exist in most parts of Europe anymore. And this is precisely why we feel concerned: the resolution we adopted at our last AGM was sparked, in fact, by a concern common among all our members: that the current pensions situation is driving more people towards poverty, instead of the other way around...

CM: But let’s start from the beginning. As someone who has always worked in social services, the first priority I would address is poverty. It’s no use starting with people higher up the ladder; you have to look at the bottom rungs first. Take the National Minimum Pension, for instance. To me, that has to be the starting point. Social services are there to provide a safety net. They are not much use, if the net is so full of holes that everyone keeps falling through. Today, we have a National Minimum Pension that used to provide a safety net... but now, with inflation, rent, increasing cost of medicines – it is no longer serving that purpose. It is obsolete....

How does this national minimum pension work out in practical terms? Is it true that pensioners are expected to survive on as little as 500 euro a month?

LC: Today, a retired couple, in which only one receives a pension, gets 150 euro a week... which goes up to 170 euro with bonuses, etc.   But that’s if only one receives a pension. There are many cases where couples both independently receive a pension: those are not as badly affected. We are talking more about those cases where a retired couple has to rely only on one pension...

I’m assuming there must be quite a few couples in that category.... considering that ‘working women’ were considerably fewer in number in years gone by...

CM: There are many in that category, yes. Their disposal income is around 170 euro a week. Now: this is what we meant earlier by ‘equivalised’ income. If we are to be realistic in the way we calculate statistics, you have to take all members of the household into consideration, not just the one who is directly entitled to a pension. According to government’s own calculations, the safety net can only be maintained if we stick to a minimum pension of 60% of the ‘equivalised’ national income... which, in the case of a single, works out at 157 euro a week... but in the case of a married couple, it’s supposed to go up to 235 euro. Yet married couples still get only 157 euro... because government has agreed in principle to the ‘equivalised’ argument, but hasn’t introduced it yet. According to the proposed reform, this will be applied in full only by 2027. [pause] 2027? What good will that be, to people who cannot wait that long? Meanwhile, it will be gradually increased... but we are still at the levels I just described.  And let’s not forget what this ‘60% of national income’ is all about. It represents the minimum that we all agree is required not to fall through the holes in the safety net. We are all agreeing, then, that anyone who gets less than that amount, is going to fall through a hole. But what is actually happening? Government has established a minimum pension to prevent that from happening, yet it is still not paying out what it describes as the ‘barest minimum’ just to survive. So how are people expected not to fall through the net?

This is precisely the part I’m not getting: government has already agreed, yet it is still not paying out what it has agreed to pay. Why not?

CM Because there’s no money; or so they say, anyway... but it’s not true. What about the surplus? What about all the prosperity, the economic boom, and all that? The truth is that we are living an illusion... the wealth is there, but it’s not trickling down to everyone. It’s certainly not trickling down to us...

Meanwhile, this also touches on the NI question I asked at the beginning. Those who get the national minimum pension, will have presumably paid the lowest NI contributions...

CM: No. This, in fact, is the extent of the absurdity we have fallen into. What was supposed to have been a ‘minimum pension’, based on the lowest NI contributions, turns out in practice to also be the maximum pension received by those who have paid all their NI contributions in full. We have turned the entire system upside down: Now, we have reached an extremity where the capping of pensions yields the same result for those who paid more in NI contributions, and those who paid less... this, alone, has broken the system. Any form of insurance pays out on the basis of the premiums paid. Otherwise, the system can’t work...

And if I’m understanding correctly: to compound matters, the ‘equivalised amount’ received by high and low NI contributors alike represents only the ‘barest minimum’ to avoid poverty... 

LC: To have said everything, however, government has agreed to introduce equivalised pensions by 2027. And it has given out a bit in the meantime. Now: we are not unrealistic, and we’re not expecting government to simply dish out the full sum immediately. But 2027 is too far away. We would like to see this measure implemented, at least, by the end of this legislature. But the real issue of concern to us is: is it possible, in this day and age, for pensioners to cope with current expenditure... involving payment of goods, services and rent?

CM: Rent alone is crushing them now. If you live on 700 euro a month, and your rent is 300 euro – to mention what is today considered a ‘low’ rent – your disposable income is going to be 400 euro a month. How can people be expected to survive on that, and not be considered ‘at risk of poverty’?

We keep using the term ‘at risk of poverty’... but to quote the late Charles Miceli: “In my experience, I do not encounter ‘people at risk of poverty’. I encounter people who are poor”. Would you agree with that as a description of the current plight of pensioners?

CM:  I am concerned about current pensioners. What is going to happen to us, the people who are pensioners today? Many of us might not be poor... but many us feel that we are moving towards poverty. The Pensions Act states that social security pensions must be revised annually, to reflect current salaries/wages, or new collective agreements. With capping, however, that is no longer happening. Today, you only get the Cost of Living Adjustment. The question I would ask at this stage is, what measures should be put in place to address the erosion of pensioners’ purchasing power as they grow older? I can speak from experience here. I retired 20 years ago, with a 600 euro treasury pension. Five years later, I still felt I was doing well. But when you hit 70... 75... 80... those 600 euro no longer cover your expenses.

LC: Our point is that the current system does not take into consideration that personal expenditure tends to increase with age. From 60 to 65, things remain generally the same...

CM [nodding]... No problem...

LC... From 65 to 70, problems might start setting in. You’ll need pills for this or that...

CM... In and out of the pharmacy...

LC: And those expenses tend to keep going up. To give you an example: a pensioner might end up needing 130 euro a month for a certain type of medication. Others might need a lot more. All out of a pension of 170 euro a week. In my case, I feel advantaged because I still feel in good health. But I’m still at the second phase – 74 going on 75. And I feel that a big chunk of Malta’s pensioners are simply not coping. It’s true that some might benefit from free medication provided by the State... but the truth is that nearly everyone sooner or later is confronted by something that is not catered for in the list of free medicines.

Separately, the NPA resolution also urges a ‘solution’ to the Service Pensions issue. My understanding is that the complaint is about people who benefit from a British Service Pension, and who have the equivalent amount deducted from their Maltese pensions... and also that we have been talking about it for years, if not decades. Is it possible that no satisfactory solution has ever been reached?

LC:  The service pensions: the issue has been dragging along forever...  since the end of British colonial rule, in fact. So long, that most of the affected people have since passed away. But there are still their heirs to consider... and I suspect that that is why both this government, and its predecessor, have been afraid of tackling the issue. They’re worried they will have to fork out a lot of money in backdated payments...

CM: One aspect of this issue that all newspapers are getting wrong is that a ‘service pension’ is only ever associated with the British military service. This is not the case at all. A service pension is just a contract between an employer and an employee: upon retirement the employee would be given a pension based on the service they had rendered. In this sense, it is similar to what we now call a ‘second pillar pension’. In Malta, there are a lot of people who qualify for a service pension: not just those who were employed in the British armed forces. Yet those are the only ones who are ever cited. This is wrong on two counts: one, there are (or were) Maltese service employees in other areas of the British administration, not just the military. Two, ‘service pension’ also applies to Malta’s own treasury pension... this is in fact the largest contingent of service pensioners by far. This is the aspect that needs to be talked about most, yet nobody ever mentions it. All those who entered the public service until December 31, 1978 are entitled to a service pension from the treasury. Those who worked for 30 years are entitled to a full pension, paid from the treasury. Yet on retirement, these people are given a two-thirds pension, based on the salary at retirement age: if, for argument’s sake, someone earned 24,000 when he reached retirement age, his pension would be 18,000...

Isn’t that true for everyone, though? Unless, of course, you count Parliamentarians... who recently voted to extend a pension to MPs who served just over one term...

CM:  That was one of the reasons so many of our members were incensed [‘ferrocjaw’]: because it had just come out, in black on white, that Parliamentarians agreed to entitle themselves a pension after just five years (one legislature)... while others are still fighting for what they are owed after 20 years or more. And don’t forget that, unlike everyone else, those pensions are not capped. An MP’s salary increases on an annual basis. Not so the rest of us. People like myself, who retired 20 years ago... if I received 600 euro when I retired, I still receive 600 euro 20 years later. That’s one of the injustices: theirs goes up each year; ours stays the same forever.  But it’s not the only one. When I die, my pension dies with me. When they die, their widows carry on receiving their pensions... But to be honest, the only really important thing is that we address the more serious problems. What we are saying – so that I’m not misunderstood – is that, fine, let them increase their salary or pensions as much as they like. But you can’t also keep ignoring the bigger issue...

LC: It’s an issue that has caused a lot of internal uproar among our members... but it’s important to stress that it is the injustice people are upset about, not the actual pension received by MPs. The bottom line is that the original spirit of the Pensions Act has been diluted. The idea was to provide a safety net for everyone. It’s ultimately only a question of justice.

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