Auto-enrolment to be Considered in the Face of Long-term State Pension Sustainability issue


A report for the Ministry for the Family and Social Solidarity with the group’s recommendations in relation to Malta’s pension system. Amongst the recommendations, the group urged the government to seriously consider the introduction of auto-enrolment.

In the UK, auto-enrolment is a pension-related law whereby any employee within the age of 22 and the state pension age is automatically enrolled into a workplace pension scheme by their employer. This is applicable to all employees with an annual salary of £10,000 or more.

The Pensions Strategy Group was a set up by the Ministry for the Family and Social Solidarity in 2013 in order to draw recommendations on how to strengthen Malta’s pension system. According to the group’s report published on the 17th of June, the state pension, albeit a “solid foundation” should not and cannot be the only source of income of retirees as this is not sustainable in the long term.

The European Commission, in its 2015 country-specific recommendations, had also pointed out that the long-term sustainability of Malta’s state pensions is under threat due to the fact that the retirement age in Malta is not reflective of an increased life-expectancy. In view of this, auto-enrolment may be the go-to alternative to mitigate full dependency on the state pension after retirement.

The group’s report suggested the introduction of a voluntary third pension scheme in the form of an individual savings bank account boosted by tax incentives. Should the tax incentives fail to call employees to action, then the auto-enrolment scheme should come into effect.

The proposal surrounding the auto-enrolment scheme is a mandatory opt-in and voluntary opt-out. The employer would be responsible to manage the administrative aspect while the government would design the fiscal incentive framework. Furthermore, the group suggested that the government carries out a strategic review of the pension system every 5 years.

The current system is based on a tax rebate of up to €1000 on annual contributions, however it would still be too early to assess its success and the report recommends that an in-depth review of the scheme be carried out by 2020.