Private pensions : aspects in the regulation of private pension schemes

Abstract

The debate on state pensions and their viability in the medium to long term future seems to be gaining momentum as demographic analysis reveals that our country will be ageing rapidly in the future, leading to a strong negative impact on our Pay-As-You-Go non-funded state pension system. The realisation that sooner or later Malta will have to tackle the provision of pensions tempted me to focus my dissertation on the possible private pension system that may be adopted in Malta, and the regulation thereof The protection of the investor is the core objective of financial regulation, especially when considering that the majority of the members of a pension scheme would be unfamiliar with the risks attached to such investment and the management thereof. It is therefore important that the legislator provides the right balance by creating trust in the system of private pensions, and whilst regulating the provision of private pensions to obtain the members' confidence, at the same time counterbalances this objective with appropriate legislation that would encourage the private enterprise to enter and flourish in this line of business. As the government has not yet pronounced its intentions as to which system to adopt, I had to limit my study to very general terms despite the complexity of the subject. For this reason I first present the demographic problem which Malta will be facing within a few years, followed by economic implications of such a metamorphosis in the Maltese population. The pros and cons of our present pension system and of a multi pillar system are listed. A concise examination of the present private pension provision available in other countries, especially in Europe, follows suit with a description of Private Pension Schemes, and the tax treatment thereof in Chapter Two. I then briefly examine the various private pension systems that may be adopted by Malta, considering also the underlying contracts that may be utilised in the provision of private pension scheme.