News & Events

- 07/03/2018

PKF shines a light on the poverty myth



Author: George Mangion 
Published on Malta Today 7th March 2018

A flourishing economy has registered an extraordinary growth in past years, yet this trend must not mislead us and lure us to wave a flag of complacency. There is a number of social challenges that affect our society and which need to be addressed in a constructive and innovative way to avoid a pejorative consequence in the future. One of these challenges involves retirement benefits in Malta.

A lot of people opine that the statutory pension mechanism unless supplemented by external income is not sufficient to help people from sliding into the poverty trap. To verify this issue, PKF has volunteered a number of one-to-one questionnaires and run a confidential survey among tenants in old people’s homes housed in three government run centres.

The main purpose for this study was to clarify the myth on controversial aspects of poverty, identifying the shifting needs of people and investigate that cohort aged 65 and over, which is usually identified as more at risk of suffering from social exclusion due to lack of income.

According to the latest 2016 data published, Malta registered a reduction on the risk of poverty and social exclusion (AROPE) rate from 22.4% to 20.1%. It is interesting and necessary to note that when one splits this value by age group or household type one finds that this improvement has not benefited everyone.

In particular, in the age group of 65 and over the AROPE rate increased from 23.7% in 2015 to 26.1% in 2016. By 2030, the number of people within this age group will exceed that of young people aged 15 to 24. This inexorably shows how society is getting older – it will inevitably face various challenges. For these reasons and other it is necessary for the government to have a deeper understanding of senior people’s pattern of living expenses as a prerequisite to gauge whether a pension can guarantee a respectable quality of life.

As in a Dickenson’s novel, if outlays and income reach an equilibrium then elderly people can live a healthy life and therefore can remain active and participate in the community. It goes without saying that elderly people have a rich endowment to bequeath to society. When questioned a majority replied that the pension is enough but most argue that they cannot afford to go to any events, concerts or museums and because of this, pensioners feel detached from society.

An altruistic drive to fight relative poverty and social exclusion is a common policy shared with all political parties that invariably finds favour with stakeholders and NGOs. Individuals who live in poverty are more likely to produce adverse outcomes for themselves (i.e. abuse of alcohol and drugs) and for the society (augmented criminal activity).

Quoting an editorial of the Times of Malta it states that the Church’s Justice and Peace Commission and the Emigrants’ Commission recently shone a spotlight on these and other societal ills. In a smart move they analysed distressing trends being camouflaged as it were, by the growing affluence displayed by people employed in highly-profitable sectors and by the surge of hedonistic tendencies that are increasingly using economic gain as a measure of success.

Regrettably this bonanza is not enjoyed at the lower end of the economic ladder and therefore needs to be addressed. Social welfare improvements continue to be announced but sharp inequalities persist and there are swathes of people including those on the poverty line and minimum-wage pensioners, who need more sustenance.

Readers may question whether our welfare net is proving to be inadequate and unacceptable in a growing economy. Is the marginal increase in wealth buttressing the welfare of our society? The first noteworthy observation from the survey is that almost 70% of families nowadays rely on a single pension.

Be that as it may it is advisable to focus our research on households composed of two people or more that only receive one pension, since without other source of income these may easily fall below the poverty line. Furthermore, respondents receiving the maximum pension said the two-thirds pension system is not representative of their total lifetime contributions given that the pension limit is capped. Only minor increments are triggered each year as a result of the Cost of Living adjustment.

When asked if they can afford to save money: more than a half of all respondents spend their entire pension.  Respondents with the lowest pension’s income, in this case lower than €500 in a month, said that they are not able to save money. Again, pensioners who receive €800 and more said that often the pension cheque does not stretch beyond the month.

Talking with people from nursing homes we found out that as the quantum of pension income is modest and most do not have any alternative sources such as contributions from relatives or friends, then most probably cannot save.

It is important to emphasise that nowadays higher rent, increased consumption of electricity, water, internet connection charges etc – all push cost of living on an inflationary trajectory.

When funds dry out people try to find other sources of income. One of them could be gambling, which can double up as a source of entertainment in addition to being a possible source of alternative income but if uncontrolled may lead to ruination.

In conclusion, our primary research was to try and ascertain if couples relying on a single pension have enough to live by. We questioned our first hypothesis, that is “retired people are not at the risk of poverty’’. The solution depends a lot on an equitable wealth distribution. It goes without saying that when the island was facing a recession in 2008/2012 there was little scope to augment the first pillar or even less introducing a sponsored second pillar.

Now in 2018 with a modest surplus in the national account and debt going down to under 45% of GDP by 2025, one may revisit this policy of introducing a second pillar. Even so, it is not expected that the State shares the entire burden for universal retirement except for those on the pover-ty line and underprivileged persons.

PKF Malta believes that the time is ripe for new empirical studies on a timely reform of social welfare. Ideally, the ubiquitous trickle-down effect must reach the lower hierarchy of the community.

A copy of the study can be secured by calling on 21484373.

George Mangion

Author: George Mangion 
Published on Malta Today 7th March 2018
Get in touch: info@pkfmalta.com | +356 21 493 041