Issue link: https://maltatoday.uberflip.com/i/1475578
3 maltatoday | SUNDAY • 7 AUGUST 2022 KURT SANSONE FOREIGNERS make up almost a quarter of the population but their impact on the country's pension spending in the fu- ture has been overstated, a new study shows. Malta's pension costs may be lower than projected by the European Commission since not all migrant workers remain long-enough to qual- ify for a pension, the study prepared by Aaron G. Grech, chief officer of the Economics Division at the Central Bank of Malta, suggests. "Relying on existing popu- lation projections, with their strong assumptions about mi- grants settling permanently in Malta, may make the country's long-term fiscal sustainabili- ty appear much worse than it could effectively be," Grech says. The study was published in the Central Bank of Malta's Quarterly Review released last week. Grech's research suggests that the proportion of foreign- ers in Malta who may acquire vested pension rights may be at most 20% of the initial in- flow. He says that over 15,500 of the current foreign work- force could eventually have some entitlement to a Maltese pension, a far cry from the 42,000 projected by the EU. In most cases, the pension is highly likely to be pro rata since most would be unable to reach the required number of contributions for a full pen- sion. "Unless a third country na- tional has started to contrib- ute in Malta as from the age of 24, and continues doing so until age 65, such person would not qualify for a full pension," Grech says. "Of all the migrants that have come to Malta in the last decade, only a quarter would have a full con- tributory period if they were to remain working in Malta till retirement age." The research challenges the assumptions made by the Eu- ropean Commission, which identifies Malta as one of the top five EU countries in terms of projected rise in pension spending. Malta's projected increase is nearly four times the EU av- erage. The EU's projection is a direct reflection of the pop- ulation projections, which see Malta's old age dependency ratio take a turn for the worse after 2040, due to assumed ageing of migrant workers in Malta. However, Grech notes that a 2019 study by the CBM had found that around a quarter of foreigners exit the Maltese labour market within their first year in the country while around half exit between one and two years later. Administrative data from the Social Security Department further indicates that at pres- ent the number of foreign cit- izens who have paid enough contributions to qualify for at least a pro rata minimum pension in Malta amounts to just over 3,500 individuals. This means that less than one in twenty of current foreign workers have a direct entitle- ment to a pension from Malta. "If one assumes two thirds of those migrants which Eu- rostat assumes will be staying until retirement do so, spend- ing would rise by five points compared to 2019. If one were to calibrate this scenario such that by 2060 there are 15,500 migrants who are retired in Malta, growth in spending would be slightly less than three points," Grech says. He adds that this recalibra- tion would bring Malta's re- sults nearly in line with those of the rest of the euro area, instead of being four times as high. Grech says that the extent to which ageing expenditure forecasts are affected by as- sumptions on migration war- rants a degree of caution. "For policy formulation pur- poses, Maltese policymakers need to monitor the length of stay of migrants and take this into consideration when mak- ing long-term fiscal plans," he argues, warning that unrealis- tic assumptions could impact the process of pension reform. Figures from the 2021 Cen- sus released last week show that foreigners make up 22.2% of Malta's population. There are 115,449 foreigners living and working in Malta. The numbers show how the foreign population increased more than fivefold in just a decade. The 2011 Census had recorded a foreign resident population of 20,289, equiva- lent to 5% of the population. ksansone@mediatoday.com.mt Qualifying for Malta's two- thirds pension A worker must have paid contri- butions for a minimum period ranging from 10 to 12 years de- pending on one's date of birth. To receive a full pension, the required contributory history is between 35 to 41 years. Workers from EU countries and from nations with which Malta has signed special agreements may be able to utilise contribu- tory periods in Malta to qualify for a pension when they retire elsewhere but Malta's share would be pro rata at most. Skewed assumption on foreign workers and rise in pension spend Foreigners make up almost a quarter of the population but their impact on the country's pension spending in the future has been overstated, a new study shows