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09/03/2020

Policy note on impact of pension age changes

The number of men aged 50 and over who are working full-time has risen from approximately 26,000 in 2008 to nearly 33,000 in 2018, while the female workforce in that age bracket more than doubled from 7,000 to over 14,000, according to a policy paper published by the Central Bank of Malta.

The paper found that the changes made to the pension age, which took effect after 2012, meant that 3,500 more people aged 50 or over remained in the workforce – and the majority of them were men and women aged 61 and 62.

Policymakers tried to counter the impact of ageing on the labour supply by lengthening working lives – primarily by raising pension ages. In 2006, the Government announced phased-in increases from 61 for men and 60 for women to 65 for both genders, with the changes taking full effect by 2026.

The policy paper assessed the impact of the changes, and said that by 2018, the behavioural response is estimated to have boosted GDP by as much as 1.3 percentage points, nearly 45% higher than previous estimates made in 2017. On average, the pension age rise is thought to have contributed 0.22 percentage points to the annual growth in gross value added between 2013 and 2018.

The paper, authored by the Bank’s Chief Economist Dr Aaron Grech, found that in 2005, the activity rate of Maltese women aged below 40 stood at 50%, well below the 63% rate observed in the European Union. By 2013, this gap had disappeared and, by 2018, 73% of Maltese women aged below 40 were active in the labour force, compared to just 65% of EU women in this age bracket. From being the country with the lowest female activity rate, Malta now boasts the fifth highest rate in the European Union, the paper noted.

The number of persons aged 60, 61 and 62 who were active in 2018 represented 2.6% of the labour force, as against just 1.6% in 2011. This age bracket, in fact, accounted for 5% of the entire rise in the labour supply during these years.

The paper also analysed the impact of the pension age changes on the ageing profile of the workforce and warned that in spite of recent developments in female participation and migration, some sectors of the Maltese economy will be impacted by ageing. Data suggest it is likely that sectors such as public administration, agriculture, construction and manufacturing would face significant labour shortages once their older workforce retires. Similarly, the supply of manual workers could worsen, in the absence of higher migration or policies that counter the effects of ageing.

Registered employed and unemployed Men (age 61 and 62)

Pension age changes

Registered employed and unemployed Women (age 60, 61 and 62)

Pension age changes

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