Sustainability issues of the Maltese pension system : the decommodification factor

Abstract

The above European Council Recommendation provides an alarming prospect on the long-term financial sustainability of the pension system in Malta. Moreover, by having an ageing population, Maltese society faces several risks particularly in the long-term. These risks range from the shortage of skilled labour, greater inequality of wellbeing among older people and inadequate levels of informal elder care (Formosa 2014). On the other hand policy makers must find the right balance between ensuring a decent standard of living for future and current pensioners whilst also managing the National Budget under close scrutiny of the European Commission. Moreover, the percentage at risk-of-poverty for the ‘65 and over’ age group stood at 17.3% (National Statistics Office 2012) as at 2012, thereby indicating that this fraction of society is already facing difficulties pertaining to income security. Yet it is clear that the Maltese welfare state is no longer in a position to sustain the full provision of pensions, and therefore the link between current and future provisions cannot be seen in isolation from the capitalist market. This means that in order for current and future elderly persons to avoid the ‘poverty trap’, different forms of income securities which can also be provided by the private sector, in-part or in-full, need to be taken into consideration. This paper makes recurrent reference to the concept of decommodification, or the ‘degree to which individual, or families, can uphold a socially acceptable standard of living independently of market participation’ (Esping Andersen 1990:30). The term ‘decommodification’ was originally postulated by Polanyi (1944). The latter opined that in the capitalist system labour is regarded as a commodity that has an exchange value (Polanyi 1944). Later, in 1990, Esping-Andersen used the same concept to explain the differences in the contemporary welfare system whereby welfare regimes had different levels of decommodification, depending on whether the provision of welfare (such as pensions) where provided by the State or by market forces (Holden, 2003). For this reason, the concept of decommodification should be seen as an antithesis of the notion of commodification, or a system whereby a good or a service is produced privately and can be bought or sold on the market (Standing 2005). With the above considerations in mind, decommodification will be used to explain the issues pertaining to the sustainability of the pension system, and to explore other alternatives that may serve as income security of pensioners of the future. These alternatives might include a move towards less decommodification, that is less provision of pensions from government, to more commodifcation (pensions provided from the private sector). The paper commences by making reference to the demographic challenges and the financial allocation from public funds required to sustain the pension system. This is followed by presenting the hypothesis and also explaining the mainstream welfare regimes as well as the concept of decommodification. Subsequently, an overview of the pension system in Malta is provided prior to delving into the decommodification variances of the Maltese system. The paper then argues for an imminent need of the introduction of the second-pillar system, and hence increasing commodification, by also making reference to three possible benchmarks, such as Sweden, the United Kingdom, and Singapore. The urgency for reform in the pension system is also highlighted by making reference to the checks and balances from the institutions of the EU, particularly the imposition of an Excessive Deficit Procedure on Malta by the former. Finally, the researcher proposes the way forward in order to address the issue of sustainability of the pension system, prior to concluding with potential areas for further research.