By the end of 2018, Malta’s pension entitlements stood at €36.4 billion, 290.8% of GDP

 Accrued-to-date liabilities (ADL) represent the present value of pensions to be paid in the future, based on the rights accrued until a specific date. These accrued pension rights result from social contributions paid by current contributors and remaining pension entitlements of existing pensioners. In simpler terms, it shows what it would cost to settle the outstanding pension liabilities if the pension scheme were, theoretically, to be closed.

Following the requirements established in both the European System of Accounts (ESA 2010)1 and the System of National Accounts (SNA 2008), EU Member States are obliged to report the total pension entitlements accrued by members of employment-related pension schemes or social security pension schemes.

Main Assumptions

A real discount rate of two per cent was applied to determine the present value of Malta’s pension liabilities as at end 2018. Since an inflation rate of two per cent was assumed, this implies a discount rate of four per cent in nominal terms. These standard assumptions, laid out in Eurostat and the European Central Bank’s Technical Compilation Guide for Pension Data in National Accounts2, were applied by all Member States to ensure comparable results.

The wage growth assumptions found in the European Commission’s 2021 Ageing Report3 were used to calculate the progression of wages, while life expectancy was determined through the latest (2019) EUROPOP assumptions4.

Results

At the end of 2018, total pension entitlements in Malta amounted to €36.4 billion, equivalent to 290.8% of GDP. Most of these entitlements were accumulated by members of the Social Security Pension System, with these accounting for €33.2 billion, or 91.2%, of the total entitlements. The remaining €3.2 billion, or 8.8%, represent entitlements relating to the Treasury Pension System.

In 2018, social contributions totalled €2.1 billion, €1.9 billion of which were used to cover the Social Security Pension System. Furthermore, pension payments of €0.9 billion were disbursed, the significant majority going towards recipients of old age type pensions.

Sensitivity Analysis

Besides the standard discount rate of two per cent, other discount rates were considered to examine the sensitivity of the results. In particular, entitlements were re-estimated using discount rates of 1% and 3%. Assuming a lower discount rate of one per cent causes pension obligations to rise by 27.4% to €46.3 billion. Conversely, pension liabilities decline by 19.5% to €29.3 billion when a higher discount rate of 3% is assumed.

International Comparison

Malta’s pension entitlements amounted to 290.8% of GDP in 2018, the 10th lowest percentage among the 28 European countries (24 EU Member States, Iceland, Norway, Switzerland and the United Kingdom) for which data is currently available. The highest ratio was reported by Luxembourg (528.0 per cent), with Austria (446.0%) in second and France (430.0%) in third. In contrast, Denmark registered the lowest share, with their obligations amounting to 94.0 per cent of GDP, followed by Bulgaria (178.0%) and Ireland (186.0%)