Issue link: https://maltatoday.uberflip.com/i/969423
maltatoday SUNDAY 15 APRIL 2018 9 JAMES DEBONO THE number of social security contributors has increased by 38,105 between 2012 and 2016, an increase of 23% in four years. During the same period, contri- butions increased from €194 mil- lion to a staggering €255 million, a 31% increase. The data on National Insurance contributions, however, does not reveal how much is being paid by EU and third country workers in Malta, which means the increase in contributors could reflect both the increase of female employees, and foreign workers in the job market. However, government sources who spoke to MaltaToday con- firmed that the influx of foreign workers in the past years has giv- en a major boost to the pension system. Social solidarity minister, Mi- chael Falzon, insisted with this newspaper that the increase of foreigners was leaving a positive impact on the sustainability of Maltese pensions. "The fact that such foreign workers pay contributions just like all other employees is an im- portant contribution towards the sustainability of our pensions sys- tem in a context where our fer- tility rate is among the lowest in Europe." Falzon pointed out that many of these employees tend to work for short periods in Malta before new ones come in. "This means that they are not expected to be paid high amounts of benefits, es- pecially pensions, when they will eventually retire." The number of contributors increased by 5,000 between 2012 and 2013, by 7,000 between 2013 and 2014, and then doubled with an increase of 15,000 between 2014 and 2015, and 12,000 be- tween 2015 and 2016. Statistics for 2017 are still being compiled. Do foreigners get a pension? All foreign employees have to pay NI contributions just like Maltese employees. And when it comes to pensions, they have to meet the same statutory and contributory conditions like the Maltese. This does not mean that for- eigners are excluded from the pension system. If they do not meet minimum conditions to become eligible for a pension, EU regulations or bi- lateral agreements may come into place. The former would apply for all EU citizens while the latter, in Malta's case, would apply for Australians and Canadians only. When such regulations or bilat- eral agreements are applied, the worker may receive a pro-rata pension. This will be based on the period of time during which the prospective pensioner would have worked in Malta and paid contributions. "Very frequently this would be a low amount, depending on the number of contributions paid," a ministry spokesperson explained. Such persons would also be enti- tled to other retirement pensions from other countries in which they would have worked. Non-EU citizens and Third Country Nationals (TCNs) not covered by any bilateral agree- ment simply do not qualify for a pension in Malta if they do not meet the same statutory and con- tributory conditions as the Mal- tese. The result of this is that while foreign employees pay full con- tributions like all the Maltese em- ployees, they may in future either qualify for a reduced rate of pen- sion or not qualify at all. Increasing the pool Increasing the pool of workers paying contributions was among the recommendations made by government pensions consultant David Spiteri Gingell. In 2011 he pointed out that a shrinking future workforce, due to lower fertility rate, coupled with a larger elderly population that stems from longer life-expec- tancies, was painting a very bleak picture for pensions. A way of countering the shrink- ing workforce, Spiteri Gingell maintained, was to boost the workforce through skilled im- migrants for certain roles. The pensions working group had also advocated a second pillar pension fund and linking retirement age to longevity. But the current Labour govern- ment has excluded both meas- ures, banking on the increase of contributions from increased fe- male participation and immigra- tion. When recently asked whether we can do away with the need of a second pillar pension fund thanks to the current bonanza in contributions, economist Gordon Cordina was sceptical. "I do not perceive mandatory second pillar pensions as a measure to avoid." A mandatory second pillar pen- sion fund would see employers and workers being obliged to pay an amount over and above their current National Insurance con- tribution to ensure the sustain- ability of future pensions. Cordina's recommendation is that of using "the wealth created by the ongoing strong economic growth, sustained in good part by labour immigration, and reflected in a fiscal surplus", to kick-start and bolster funded pensions. This can be done by provid- ing generous incentives to work- ers saving in them (and to their employers), particularly to those with relatively low incomes and issuing saving instruments with attractive rates of return for the exclusive use of such pension funds. This could also help insure retirement income against future economic risks to growth and mi- gration patterns, Cordina said. jdebono@mediatoday.com.mt News Pensions pot gets boost from over 38,000 new contributors NI paid (€) 260m 240m 220m 200m 180m 160m 140m 120m 100m 80m 60m 40m 20m Contributors 240,000 200,000 160,000 120,000 80,000 60,000 40,000 2012 2013 2014 2015 2016 Year Class 1 NI Contributions Number of contributors 2012 €194,836,691 163,541 2013 €204,316,605 168,211 2014 €216,236,210 175,362 2015 €234,894,342 189,671 2016 €255,771,117 201,646 "The fact that such foreign workers pay contributions just like all other employees is an important contribution towards the sustainability of our pensions system in a context where our fertility rate is among the lowest in Europe" Social Security Contributions by employed persons are called Class 1 Contributions and are paid by direct deductions from the same employees' wages/salary. In a normal case scenario, an equivalent rate paid or deducted from the employee's wage/salary, is also paid by the employer