An Expert Explains: Pension adequacy

The current maximum social security pension is around €1,000.

Depending on your expectations and lifestyle, this might be enough, or not even close. Even in the best case scenario, it does not leave much room for luxuries.

In other words, is it adequate?

For the second in a series of article aimed at demystifying the world of pensions, BOV Manager within the Bancassurance Office Claire Falzon explains pension adequacy. The first article, explaining what private pensions are, can be found here.

“Pension adequacy refers to the level of income at retirement that allows individuals to maintain an acceptable standard of living after they stop working.

It refers to how well a pension provides sufficient financial resources to retirees to cover their basic needs and to maintain the desired lifestyle.

Achieving pension adequacy means that the level of income at retirement allows an individual to enjoy a comfortable life during their retirement.

To determine pension adequacy, one needs to consider what is the pre-retirement income that is replaced by the pension.

Needless to say, the higher an individual’s salary is, the higher the standard of living one gets accustomed to. This may make it difficult for pension to be enough to maintain such lifestyle.

This is where private pensions may be helpful, since the additional income they provide will help towards maintaining one’s desired lifestyle at retirement.”

An Expert Explains is a BusinessNow.mt initiative to improve economic financial literacy by inviting industry leaders to explain technical terms in a manner that can be understood by a general audience. If you would like to suggest a term or concept for our network of professionals to break down, or if you are an expert willing to contribute to this column, send us a message on our Facebook Page.