The role of private insurance companies in the introduction of 2nd and 3rd pillar pension schemes in Malta

Abstract

Insurance companies in various countries have been involved in the provision of pensions for a number of years. Although they are sometimes used to provide private savings instruments, which may be used to supplement retirement income, they have not yet officially been constituted the responsibility of pension provision in Malta. Unfortunately, because of increasing longevity and the ageing population, individuals are at risk of falling into poverty at retirement if not enough income has been provided for. Throughout the past decade, efforts have been made to resist such risks by developing a Multipillar Pension structure. This involves the introduction of Pillar Two, a mandatory occupational pension provision, and Pillar Three, which would be a voluntary supplement to other income taken out privately. Insurance companies will be able to supply both types of products and, needless to say, will have an important role in their introduction. This study sought to determine what the most important of these roles would be, why insurers will be important market participants and how they could best take on the functions which they will be appointed with. Following extensive research, it examines the situation locally and makes cross-comparisons with reforms which happened over the years in other countries. Using available data as well as purposely-designed questionnaires, various findings were made which support arguments in favour of insurers' importance. Major roles include, amongst others: - The shift of the burden from the State to the private sector; - Promotion of the concept of personal responsibility for one's own retirement funding; - Increasing national savings; - Pooling longevity and other risks; and - Using their expertise in the area for the benefit of pension plan members. However, one of the most prominent was their role of making the public aware and providing financial education through intensive campaigns. Also important is their individual and collective contribution in changing the negative perception that the public currently has towards the industry. Given that the market environment is likely to be dynamic with constantly-changing needs, insurers will also be a key component of the Multipillar model by continuously conducting research, evaluating progress and prospects, and making improvements and innovations which will benefit both the public and the local financial industry as a whole.