New pensions put Maltese women in greater risk of poverty

from The Malta Star

The new pension system which came in force at the beginning of the year discriminates against Maltese women - it makes it more difficult for them to obtain an adequate pension and avoid living below the poverty line.

Social Watch, the international network of citizens’ organisations struggling to eradicate poverty, slammed government for not doing enough to ensure that the new pension system does not leave women, low income earners, and other groups without a suitable old age pension.

In its annual report for 2007, “Social Watch 2007 report - in dignity and rights”, the platform of NGDOs states: “The parametric reforms are driven by the objective of increasing revenues and decreasing ‘generosity’ in terms of the annual pension benefits paid out, and thus they are likely to have a negative impact on the incomes of certain strata of pensioners. The new pension reform is mainly driven by demographic pressure and fiscal stability concerns, and its impact on income adequacy and pensioner poverty does not always appear to have been given sufficient assessment.”

“The new reform sends a clear signal to individuals that they need to work more to qualify for the same benefit, rather than simply cutting benefits and then possibly facing a political backlash and being forced to increase them once again.”

The new pension scheme also fails to provide a system of automatic payment to persons who dedicate their lives to care for elderly and less healthy individuals in their families. The social benefits available for these persons are restricted, and eligibility depends on conditions such as the patient has to be bedridden or wheelchair bound. “In several EU countries, care of the elderly has begun to be credited within the pension system, an important feature left out of the new pension scheme, even though home care is considered a priority in elderly care in Malta.”

On a positive note, the report praises Malta for continuing to update its legislation to increase gender equality. Malta is the EU member state with the greatest level of equality between men and women when it comes to wages and salaries. Yet, the gap between men and women holding political or top decision making posts in Malta is still the widest in Europe.

Lower income workers disadvantaged

The ‘Social Watch’ report argues that the new criteria for determining the final pension payment that the elderly workers will receive puts low income earners and workers who had steep earning rises in their careers at a disadvantage, possibly leaving them with less income and the risk of living elderly life in poverty.

In the older system, the amount of pension a worker would get was calculated on the basis of the best three out of the final 10 years of work, when most workers are very likely to have their highest income. But in the new system, the pension payment is calculated on the basis of the best 10 years of salaries out of the full 40 years of work required to be entitled for the benefit. It is very likely than in selecting the best ten years of a worker’s earning history, one would have to include lower income levels which would have been left out in the previous system of basing pension payments on just three years of income.
“The [pension] remuneration may no longer be representative of the final salary of workers before they retire… with the new changes, pension payments are expected to be on the decline, which in turn is likely to raise the risk of the elderly falling back on means-tested social assistance or dropping below the poverty line,” the report states.

Discriminates against women

The report on Malta’s pension system, penned by Joseph Sammut from Kopin, explains that in the new system, which government enacted in 2006, only those who work (and contribute payments to the scheme) for at least 40 years are entitled for an old age pension. This is 30 working years more than the previous system, in which only a decade of work was required to qualify for pensions.

“Under the new scheme, it will be difficult for many married women and mothers to reach the 40-year target for a full two-thirds pension; women in certain age groups, who stopped participating in the economy for a period of 10 years or more, will not have made the contributions needed to qualify. Although the new scheme gives two years credit for each child, considering the wide gender gap in employment rates there is a need for more effective means to protect women against discrimination in their old age. Women should be better remunerated for their care-giving role in the family, a factor which has a considerable weight in Maltese society.”

There is still a large gap between the number of employed women (37%) and that of employed men (73.8%). Moreover, one out of every five female workers (21.8%) has only a part time job, while only 4.5% of working men are employed on a part-time basis only. The employment rate for older women is 12.4% compared to 50.8% for men. The rate of employment for women between the ages of 20 and 49 falls by 8.9 percentage points when they have a child, while that of men increases by 4.4 percentage points.

44% of women without paid employment state that they are not employed due to personal or family responsibilities. This goes to show that many Maltese women devote more time to unpaid work than men. Their career patterns are based on their care obligations in the family. Yet, the new pensions system does not sufficiently provide for this.

Doubts on second pillar pensions

As part of the new pension scheme, government also announced it will be introducing a second pillar pension. This will be formed through allocating a share of social services contributions to be invested through a retirement fund handled by professional fund managers. In its report, Social Watch refers to a study by the Hungarian Central Bank, which found out that “returns recorded so far in the private pension funds fall short of expectations and, on condition that these low returns persist, the second pillar is projected to provide annuities that do not make up for the reduction in benefits received from the public pillar.”