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STATISTICS MALTA

MALTA: PENSION ENTITLEMENTS = 244.4% OF THE GDP

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MALTA_PENSION_ENTITLEMENTS.jpgPension entitlements in Malta

Accrued-to-date pension entitlements (ADLs) represent the current value of pensions to be paid out in future periods based on rights accumulated by each contributor during his or her working life. In simpler terms, it shows what it would cost to settle the outstanding pension liabilities if the pension scheme were, theoretically, to be closed.

These entitlements provide two different perspectives; the (i) households (creditors) entitlements equivalent to the (ii) government (debtors) liabilities. 

 

 

 

Main Assumptions

A real discount rate of two per cent was applied to determine the present value of Malta’s pension entitlements as at end 2021. An inflation rate of two per cent was assumed, hence a nominal discount rate of four per cent. These standard assumptions were established in the Technical Compilation Guide for Pension Data in National Accounts as compiled by Eurostat and the European Central Bank, to be followed by all Member States to allow geographical comparison.

The wage growth assumptions found in the European Commission’s 2024 Ageing Report were used to calculate the progression of wages, while life expectancy was determined through the latest (2023) EUROPOP projections.

Results

By the end of 2021, total pension entitlements for Malta amounted to €37.5 billion, equivalent to 244.4 per cent of the national GDP. Social Security pensions represented the bulk of these entitlements, accounting for €34.7 billion or 92.6 per cent of the total. The remaining 7.4 per cent reflect entitlements towards Service Pensions. 

International Comparison

Malta’s pension entitlements amounted to 244.4 per cent of GDP in 2021, the 5th lowest percentage among 27 European countries (24 EU Member States, Iceland, Norway and Switzerland) for which data is currently available. The highest ratios were reported by Spain, Austria and Italy, at 507.0 per cent, 464.0 per cent and 443.0 per cent, respectively.  In contrast, Denmark registered the lowest share, with their obligations amounting to 94.0 per cent of GDP, followed by Ireland (177.0 per cent) and Bulgaria (211.0 per cent). 

Social contributions totalled €2.3 billion, 99.6 per cent being used to cover the Social Security Pension system and the rest covering Service Pensions. By the end of 2021, there were 407,238 working age persons with paid or credited contributions, 82,882 or 20.4 per cent being foreigners with a residence permit. 

Furthermore, there was €1.0 billion in pension payments, €0.8 billion of which went towards recipients of Old Age type pensions. In comparison to the 2018 exercise, pensions outlay rose by 15.2 per cent. 

Sensitivity Analysis

Besides the standard discount rate of two per cent, the robustness of the results was tested by applying different discount rates to Malta’s ADL model. In particular, entitlements were re-estimated using discount rates of one per cent and three per cent. Assuming a lower discount rate of one per cent results in higher pension obligations by 26.8 per cent to €47.5 billion. Conversely, pension liabilities decline by 19.2 per cent to €30.3 billion when a higher discount rate of 3 per cent is assumed. 

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