The pension time bomb: Can Malta afford to grow old?

As Europe is confronted with an ageing population, Malta finds itself at the sharp end of the pension crunch: a small economy, a state-heavy system, and young workers worried they may inherit less than their parents. Lea Hogg spoke with Dr Andrew Borg Cardona, employment law specialist, and Jesmond Mizzi, financial services expert, to explore whether Malta can defuse its looming pension time bomb - or risk leaving a generation financially stranded.

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Maria Borg, a 32-year-old professional in Malta, captures the unease of her generation: “Will I ever have a pension worth living on?” Her concern is justified. The number of people aged 65 and over per 100 working-age adults is projected to rise from about 34 in 2022 to nearly 50 by 2050, placing Malta among the regions with the highest old-age dependency ratios in the world.

Malta looks prosperous on paper: steady GDP growth, buoyant tourism, and record employment. Yet beneath the surface lies a fiscal and demographic fault line. The state-heavy pension system, coupled with underdeveloped occupational and private schemes, has created a “pension time bomb” that threatens both fiscal sustainability and intergenerational fairness. Employment lawyer Dr Andrew Borg Cardona puts it bluntly, “Malta cannot ‘afford to age’ because the older you are, the less you can contribute to work and taxes. It’s not rocket science, unlike finding a solution, which is certainly beyond me, a mere lawyer.”

Malta’s state pension currently replaces about 39% of average income, a figure projected to fall to just 32% by 2070. With limited participation in voluntary or occupational plans, most retirees remain dependent on the state. Labour force participation among those aged 55 to 64 sits at around 60%, limiting contributions from older workers. Migration offers modest relief, roughly 1% of the working-age population annually, but cannot offset the structural imbalance. Borg Cardona recalls that the alarm has been sounding for decades. “When I started working with the Malta Employers’ Association in the early 80s, we already knew we were heading for a very tough future.”

Reform hinges on three levers: contribution, coverage, and efficiency. Europe offers lessons. The UK’s automatic enrolment model boosted participation among eligible workers to 86% by 2021, particularly among younger and lower-income earners. Fees are capped at 0.75%, with many funds charging less than 0.5%, keeping savings intact. In Malta, employer participation in voluntary schemes remains patchy. Jesmond Mizzi warns that relying solely on the state pension will simply not be enough for future generations, and that the earlier people start saving, the more flexibility and security they will have later.

“Every year of delay makes reform harder and less fair.” Jesmond Mizzi

Automatic enrolment in the Maltese context could begin with modest contributions that rise gradually over time, paired with mandatory employer contributions. Workers could retain the option to opt out, but research shows few would. The system is simple, affordable, and largely self-sustaining. But quantity alone is not enough. The EU’s own pan-European pension experiment has struggled, hamstrung by weak incentives and high fees, a cautionary tale that without transparent tax treatment, competition, and robust governance, reforms will underdeliver. Financial literacy is equally critical, Mizzi notes, as many Maltese people underestimate their retirement needs and start saving too late. Building awareness from a young age is essential if reforms are to succeed.

Younger Maltese, already squeezed by housing and living costs, fear higher taxes and later retirements to support older cohorts. That anxiety is rational. A credible system must protect low-income pensioners while linking retirement age to life expectancy, setting realistic expectations for younger workers. Reforms should be framed as solidarity, not as a zero-sum struggle between generations. Borg Cardona highlights a cultural hurdle: “Sadly, Malta is ‘everything-ist’ when it comes to interacting with anyone different, whether it’s skin colour, country of origin, religion or age. Beyond a certain age, people find it difficult to be employed, though the labour shortage might soften that attitude.”

“A mixed model — state and private — is the only credible path.” Dr Andrew Borg Cardona

To make reform measurable rather than rhetorical, experts have suggested that pension coverage should extend to 65% of under-35s within three years, with total fees kept below 0.5% and retirement age transparently linked to life expectancy by 2027, with carve-outs for physically demanding jobs. Borg Cardona is frank that someone has to pay for the ageing population, and there will be fewer people in the productive age band in the future, though immigrant workers are often cited as part of the solution. Mizzi adds that while more workers help in the short term, without proper long-term savings structures, the problem is merely delayed. Sustainable solutions, she says, are essential; temporary fixes will not suffice.

There are feasible steps Malta could adopt immediately. Automatic enrolment could be phased in for young workers with low initial contributions that rise gradually, paired with mandatory employer top-ups. Tax incentives should be harmonised and fee structures simplified to allow providers to offer low-cost, attractive products. Financial literacy programmes should target those in their twenties and thirties, paired with workplace nudges that make saving automatic. Statutory retirement age should be linked transparently to life expectancy, while recognising the needs of physically demanding jobs. Critics will argue that higher employer costs make this unrealistic, but the alternative, rising taxes and unfunded liabilities, risks a harsher fiscal reckoning later. Borg Cardona notes, “State pension or private or both? A mix. As the Americans, even pre-Trump, showed, relying solely on the private sector isn’t exactly a brilliant idea.” Mizzi echoes the urgency: “We’re running out of time to make the right choices. Every year of delay makes reform harder and less fair.”

Malta need not reinvent the wheel. The Netherlands has near-universal second-pillar coverage with minimal fees; Italy offers high occupational participation but limited flexibility; and the UK’s auto-enrolment scheme has transformed savings habits among younger workers. Across Europe, the lesson is consistent: simple, transparent, professionally managed systems outperform complex, high-fee ones.

Malta now faces a stark but manageable choice: act decisively to build a balanced, transparent, and professionally governed pension framework, or delay and leave younger generations burdened by higher taxes, longer careers, and insecure retirements. Someone will have to pay, Borg Cardona reminds us, but the question is whether Malta pays steadily and fairly through reform, or belatedly through crisis.

Good policy is about designing the society you want in twenty, thirty, or fifty years. For Malta, the clock is already ticking and the fuse is getting shorter.

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