What David Spiteri Gingell says.
David Spiteri Gingell, who has been involved in pensions reform since 2004, is responsible for the implementation of the 2017-2019 Retirement and Financial Capability Strategy.
Sustainability is not the only issue up for discussion in the pensions sector. In fact, earlier this week Equality Minister Helena Dalli and NAPE Commissioner Renee Laiviera touched upon one facet of the pension topic, saying that the gender wage gap would, in the end, result in a gender pension gap that would leave more women at risk of poverty.
“De facto, our pay-as-you-go system is gender discriminatory because the system is based on the social model that there is one person who works uninterruptedly”, says Spiteri Gingell when asked about the potential of this gender pension gap. To attain the full pension, one needs to have 40 years of contributory history which, given woman’s tradition role of raising the family, makes it gender discriminatory, he says.
While the gender pay gap may be more evident in some sectors than others it is, for instance, nearly impossible to have a gender pay gap in the case of a public sector operating with a collective agreement: there are differentiations in how more women than men move onto part-time jobs, Spiteri Gingell says. This will have an impact on pensions because a part-time job simply pays less, making for a lower contribution and hence a lower pension.
Spiteri Gingell explains that a number of measures have been introduced in this regard, but the biggest one is for child-rearing. Here, women are awarded a four-year credit, by which the government pays the pension contribution on behalf of the individual for every child up to the third one, after which the credit is reduced to two years based on the obligation that the woman returns to the labour market.
A human capital credit – or education credit – has also been introduced, says Spiteri Gingell, which ensures that people who invest in their studies do not receive a lower contributory history because they may enter the labour market later than others. This particularly applies to this topic especially because, statistically, more women graduate from higher education than men.
Another topic worthy of discussion is how much people actually understand the whole pension system and how it works. One thing that people do forget, Spiteri Gingell explains, is that “the pension is designed to give an adequate level of disposable income, but is not designed to give the same level of income as employment.
“What we find is that a lot of people do not know how the pension system works, and thus make wrong decisions during their lifetime that eventually affect their pension income”, he continues.
One group that Spiteri Gingell singles out as an example of this are the self-employed. He explains that the contribution of those who are self-employed is taken from their earnings rather than their wage, which means that there is a tendency for the contribution to be seen as some sort of tax. As a result, he continues, many people end up under-declaring their income in order to pay a lower contribution. It is only once these people retire that they realise what has happened, and by then it is too late.
Spiteri Gingell is, however, hopeful that this will change. He says that there is a movement to begin introducing more education on financial literacy and capability and, while this will take time, he can foresee the younger generations beginning to move more towards private investment specifically for their retirement.
This leads on to the final matter: private pensions. What part do these play in the scene? Spiteri Gingell points out that the state pension is not there to replicate people’s pre-retirement lifestyle and earnings. If people want to replicate that, he says, then it is their own responsibility to do so, and private pensions are one important way to go about it.
Legislation on private pensions was only passed recently, and Spiteri Gingell expresses his frustration at this. He says that the system for such legislation had been designed by the working group in his time as Chairman in 2005 and 2006 in tandem with the MFSA – but the government had never adopted it. He laments that eight years have been lost and that the decisions taken back then had left a generation without the golden opportunity to save for their future.
The system currently in place, which allows investors to withdraw 30 per cent as a lump sum and tax-free whilst then stipulating how the remaining 70 per cent can be withdrawn, is there to incentivise people to saving. That saved 70 per cent will then be used to genuinely boost the person once he/she retires – the true point of having a pension system, Spiteri Gingell concludes.