Employers and unions are on the same wavelength on what the government should do with regard to people who reach retirement age – they both want to see people aged between 61 and 64 allowed to remain active in the labour market while still receiving a pension or at least part of it.
As things stand now, they can’t.
A person who reaches 61 years of age at present can opt for an earlier pension entitlement provided that they will not remain in any gainful occupation and have paid the stipulated contributions between age 18 and date of retirement, which varies according to the year of birth.
A study that was conducted last year has suggested that the government reviews its position, and as the government is now in the process of publishing its pre-budget document in preparation for the presentation of the budget for 2024 in October/November, unions and employers are once again calling on the government to revise its position.
In comments to The Malta Independent on Sunday, the Malta Employers Association and Malta’s two largest unions, the General Workers Union and the UHM-Voice of the Workers argue that given the present situation in the labour market, people who at age 61 choose to “retire” should not be deprived of the possibility of remaining gainfully employed while still receiving a pension.
In an interview carried out by this newspaper last October, David Spiteri Gingell, a former chairperson and member of the Pensions Strategy, had explained his role in the drawing up of a joint position involving the Malta Chamber and the GWU.
He had said that the solution recommended was to create an early retirement pathway for persons aged 61 to 64, during which period they receive a reduced pension (full pension provided at 65) and continue to be actively engaged in the labour market.
He had explained how the degree of partial pension becomes closer to 100% as people move closer to the statutory retirement age of 65 years. As an example, Spiteri Gingell had said that this could be introduced as follows:
· Retiring at 61 years of age, the pension income entitled is pro-rated at 50%
· Retiring at 62 years of age, the pension income entitled is pro-rated at 60%
· Retiring at 63 years of age, the pension income entitled is pro-rated at 70%
· Retiring at 64 years of age, the pension income entitled is pro-rated at 85%
In this way, people who “retire” between 61 and 64 years of age would still receive a pension while still being allowed to work against payment.
The GWU still holds the same position on the matter.
The GWU argues that this “all or nothing approach” to early retirement should be replaced by a flexi-employment approach, allowing individuals to balance their need to reduce their working hours while remaining active in the labour market.
In replies to questions by this newspaper, the GWU proposed that retirees who choose the flexi-employment option should receive a pro-rata pension income based on the age at which they retire, as had been suggested last year.
The union believes that this approach would allow individuals to supplement their income with a pension, ensuring that their lifestyle is not curtailed, while also retaining their valuable experience in the workforce.
A person who selects a flexi-employment approach to retirement must work for a minimum set of hours established through a formal contract between them and their employers and employment registration with Jobsplus to benefit from the drawing down of the retirement pension, the GWU said.
The GWU said that the majority of employees are opting to stay in employment after they reach 61 years of age. Firstly, because they enjoy what they are doing and secondly in those four years (61 to 65 years) they can top-up their pension – when they eventually retire – by about 23%. This could make a huge difference on their standard of living. The top-up is on all levels of pension even if they are on the top tier.
“Our proposal was meant to address those who opt to retire at 61 years of age. As the law stands right now either you are in employment or you are not,” the union said.
The union thought that those who can contribute on part-time basis should still be allowed to do so and still receive a partial pension. “This proposal can help both employees and employers. Employees can keep an active life and contribute towards their well-being and that of their family. While working they will still pay National Insurance,” the union said.
The union said each retirement means a loss of knowledge and experience for a company. That knowledge is lost forever because nobody retires at 61 and then starts to work again at 65, the union said. In addition, since there are vacancies in all economic sectors, they can continue to contribute towards either their workplace or a new work place. We believe that of the people who retire at 61, some might end up in the black economy since they cannot work regularly, the union said.
“We believe in active and independent senior citizens. Active aging is not limited to physical health but encompasses overall well-being, including mental, social, financial and emotional aspects. Our philosophy is to encourage individuals to embrace aging as a positive and rewarding stage of life, and if he/she wants to continue working, then we should do all our efforts to help and facilitate the process,” the union said.
In its reply, the Malta Employers Association said it has long been advocating for incentives to keep retired individuals in employment. The MEA proposes that those who work beyond the age of 61 and have already paid full national insurance contributions should still receive 50% of their pension until they reach the retirement age. This measure would be cost-effective as it would be offset by the increased productivity gained from retaining more people in employment. Moreover, having more retired individuals in the workforce would reduce Malta’s dependency on foreign employees, the MEA said.
The MEA said that even if they can handle a full-time job, thousands are taking the option to retire at 61. This is particularly true for lower-paid jobs, where the difference between wages and forfeited pension is minimal. Hence they would prefer to draw the pension at 61, even if they have to stop working.
This is wasteful in a situation where labour is scarce and will continue to become scarcer as the population ages. It is also encouraging people, who reach the age of 61, to resign from their normal job, take the pension and work in the informal economy, resulting in lost tax revenue.
Unfortunately, there is a segment that is continuing to work not by choice, but because the state pension is insufficient to sustain a decent lifestyle, the MEA said. These persons may end up working reluctantly even beyond the age of 65. What we need is to encourage more elderly persons to work voluntarily because they believe they can still contribute to society and the economy. However, they should not be penalised for doing so, the MEA added.
With regard to the proposals made in the Spiteri Gingell report, the MEA said that this is very much in tune with what it has been proposing. An additional measure would be to remove tax on pensions completely if a person works beyond the age of 65. Many people stop working at that age because they stand to be taxed 25-35% of their pension if they stay in employment. Besides being unfair, such a measure will be a good incentive for productive employees to extend their working lives. Tax should not be deterrent to remain in employment for this segment. The retired segment could be a valuable resource in addressing the labour shortage problem, the MEA said.
The UHM-Voice of the Workers said this debate stems from the fact that retirement pensions are no longer adequate to guarantee a decent living. Efforts should be channelled to address this specific issue in the first place.
Trying to circumvent the problem by measures such as postponing retirement or “enticing” workers to remain in employment beyond what is stipulated by law, is unfair. Workers who contributed throughout their lifetime through the social security contribution should be entitled to receive an adequate pension and not end up in a situation whereby they have no option but postpone their retirement.
Nonetheless, should there be employees wanting to remain in employment beyond retirement age, should be allowed to do so without losing their pension. Moreover, in such cases these employees should no longer pay their social security contribution, given they are receiving their pension and should benefit from all services entitled to pensioners.
The concept of active-ageing should not be used as a smokescreen to make up for the existing shortcomings in the pension system, namely sustainability and adequacy, the UHM said.