Discussions ongoing on occupational pensions

The Malta Financial Services Authority (MFSA) has been engaging on a regular basis with the government on the proposed introduction of an auto-enrolment occupational pensions framework, with considerable progress made over the past few months.

The government has declared its intention to introduce an occupational pensions framework based on auto-enrolment principles, while also incorporating voluntary elements. However, the framework will need to encompass long-term investment structures that are flexible enough to cope with various scenarios that may arise over the course of an employee’s working life, and offer models that would apply to different employment contracts as well as to mobility across various entities.

Another important factor uppermost in the minds of the MFSA and the government was that occupational pensions will play a major role in determining the standard of living for employees once they retire.

MFSA chairman Jesmond Gatt said that this product was a challenging one, with the regulator’s job being to ensure that it had been carefully designed from the outset.

“There were a number of aspects that we had to look into. For example: who is buying the product: the employer or the employee? Who is the ‘consumer’ that we have to safeguard?”

“Also, some pension products currently available have penalties for those who stop paying in, but we did not want that, as it would have serious implications for a worker who decides to retire early, for example.” Just as important is the issue of mobility across jurisdictions, particularly given that today’s workforce is diverse and inclusive of many workers who are willing to move across countries and who with their flexibility rewards the economy, and who should therefore not be penalised through these products.

One decision that has to be taken is whether the operators of the auto-enrolment occupational pension products are rewarded through a fixed cost structure, or whether the products will allow for a variable cost structure.

“This creates many challenges. We have to ensure that there are enough safeguards for the pension to remain viable over time, this is a product that needs to maintain its promise over a user’s entire lifetime, which continues to get longer,” he said.