Dr AARON GRECH, chief economist of the Central Bank of Malta and a long-standing member of the Pensions Strategy Group, speaks to The Malta Business Weekly about why the pension reform has proven politically divisive across Europe – and how Malta has managed to implement major changes with minimal social resistance.
Across Europe, pension reform has become a politically sensitive issue. Why is public resistance so strong?
The economic case for pension reform is well understood. Ageing populations, rising life expectancy and demographic transitions are placing increasing pressure on public finances. However, reforms often fail not because of weak economics, but because they collide with electoral incentives and public mistrust. When people feel reforms are being imposed abruptly and without fairness or transparency, resistance becomes inevitable.
Recent events in France illustrate this clearly. The decision to raise the retirement age to 64 led to widespread protests and political instability. That reaction reflects a broader European pattern where reforms are often perceived as brusque, top-down measures that leave individuals feeling powerless and unfairly treated.
Malta, however, has implemented similar reforms with little resistance. What explains this difference?
Malta adopted a very different institutional approach. Every five years, a Pensions Strategy Group is appointed, composed of civil servants and technical experts. The group assesses the pension system holistically – not just its finances, but also its impact on poverty, gender equality and employment.
Its reports are evidence-based, publicly consulted upon, and ultimately adopted by Cabinet. Over time, this has created trust in the process. Discussions remain technical rather than political, and there is broad acceptance that the pension system is a long-term social contract that binds not only current administrations but future ones as well.
How important is predictability in securing public trust?
Predictability is absolutely central. In Malta, reforms that affect people’s retirement behaviour are introduced with long notice periods – currently 15 years. This allows individuals to adjust their plans and expectations. It also forces policymakers to plan carefully, because mistakes cannot easily be reversed.
Pension reform is not something that can be handled through short-term fixes. It is more like manoeuvring a tanker into port: small, poorly thought-out moves can have irreversible consequences. The structure we have in place ensures reforms are gradual, deliberate and well-designed.
What impact has this approach had on Malta’s labour market?
The results have been significant. Across Europe, career duration has increased from 34.8 years to 37.2 years over the last decade, often following painful and contested reforms. In Malta, career duration increased from 33.6 years to 39 years – the largest increase among EU member states – surpassing the EU average as early as 2018.
This transition happened relatively painlessly because of how reforms were designed and communicated.
What specific policy measures supported this transition?
There are three main pillars. First, while the statutory pension age has increased, early retirement at 61 remains possible for those who meet the contribution requirements. Second, individuals who continue working beyond 61 benefit from a very generous pension top-up scheme, which can increase pensions by up to 29%. Third, life expectancy projections are reviewed every five years to ensure intergenerational fairness in contribution requirements.
Together, these measures give individuals real choice. People can retire earlier if they have contributed enough, or they can work longer and be financially rewarded for doing so. At the same time, credits ensure that important life events – such as child-rearing or post-secondary education – do not penalise individuals’ pension outcomes.
What happens next for Malta’s pension reform process?
The Pensions Strategy Group has recently completed its fourth review of Malta’s pension system. The report will now go through the consultation process with stakeholders. As with previous reviews, the aim is to ensure credibility, transparency and long-term sustainability.
If reforms are built on evidence, introduced predictably, and designed with fairness and flexibility in mind, it is possible to secure public trust. Malta’s experience shows that pension reform does not have to lead to political backlash – it can be achieved through good governance and long-term planning.
Dr Aaron Grech is chief economist of the Central Bank of Malta and a member of the Pensions Strategy Group. He previously served as a research fellow in social policy at the London School of Economics and as an Economic adviser to the UK government during two major pension reform programmes
