Policymakers in Malta have been cautioned over the methodologies used to predict population estimates when calculating future pension spending.

In a Quarterly Review published by the Central Bank of Malta, the bank highlighted that the country’s high migration flows experienced in recent years have made it harder to make reliable population projections.

For example, the first set of Eurostat’s population projections for Malta made in 2005 suggested a population of 508,000 by 2050 while those made in 2010 indicated 427,000 for the same year. Yet the Maltese population in 2020 was already more than 516,000. The bank noted that Eurostat’s projections assume that most migrants stay in Malta until their death.

“In fact, Eurostat’s no migration population projection shows a population aged 65 and over of 168,000 in 2050 as against the baseline projection of 210,000 for the same year. This suggests that the Eurostat baseline projections imply that over 42,000 pensioners in 2060 will be recent migrants to Malta. However, Borg (2019) using longitudinal administrative data finds that around a quarter of foreigners exit the Maltese labour market within their first year in the country while around half exit between one and two years later,” the report stated.

To qualify for Malta’s two-thirds pension, a worker must have paid contributions for a minimum period ranging from 10-12 years depending on one’s date of birth, while to get a full pension the required contributory history is between 35-41 years.

The bank said that data from the Social Security Department indicates that at present the number of foreign citizens who have paid enough contributions to qualify for at least a pro-rata minimum pension in Malta amounts to just over 3,500 individuals. This means that less than one in twenty current foreign workers at present have a direct entitlement to a pension from Malta.

However, the European Commission (2021) identifies Malta as one of the top five EU countries in terms of the projected rise in pension spending. The rise projected for Malta is nearly four times the EU average.

Therefore, the bank has warned that for policy formulation purposes, Maltese policymakers need to monitor the length of stay of migrants and take this into consideration when making long-term fiscal plans.

“Relying on existing population projections, with their strong assumptions about migrants settling permanently in Malta, may make the country’s long-term fiscal sustainability appear much worse than it could effectively be,” the report noted.

“It could also impact the process of pension reform weighing the case against adequacy reforms unnecessarily. Moreover, it is crucial to look at a number of different scenarios with varying assumptions, so as to make pension policy robust to changes in migration patterns.”

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