A study on the need of making the second pillar pension compulsory in Malta and on the options for implementation

Abstract

Pensions are a source of income provided to people when they are no longer earning a regular income from employment once they reach a certain age and retire from work. Such pensions are normally provided by the government, private insurance companies and employers. The principal aim of this study is to give a summation overview of the pros and cons of making a compulsory second pension in Malta. Furthermore, this study sought to determine the possible options for implementation by researching similar problematic situations in other countries namely, Sweden, Chile, Mexico and other Latin American countries. Following extensive research, this research outlines a brief overview of the current pension situation and its pitfalls. It then lists a number of recommended reforms suggested by the Pensions Working Group, the European Commission, the World Bank and others. Using qualitative research methods, a number of interviews were held with prominent stakeholders. These included life insurance companies, policy makers, economists, unions of employers and employees and other institutional bodies to determine their views in relation to implementing a mandatory second pillar pension. Various findings were made and presented into four different perspectives. Briefly, results determine that reforms are needed to the current pension system as it has been pushed up to its limits. The introduction of a mandatory second pension needs further discussion to secure a number of considerations such as the financial impact on employers, the fiscal incentives needed, employment securitisation and regulations. Implementation process is recommended to be phased out ideally according to age and number of years in workforce. Counter arguments were also highlighted as to determine the negati In the concluding part of this dissertation, results were discussed whilst a number of recommendations in accordance to the reforms needed where put forward. Mainly these include improvement in financial literacy, establishment of a default fund and safety net, enhancement of regulations, increase in the female participation rate and employment rate for older workers, and the setting up of a task force to deal with the long term reform plans and budgeting.