Did COVID make more people opt for early retirement and what does that mean for Malta’s economy?

With Malta’s rapidly ageing population, economists feared the pandemic would upend years of work by policymakers to encourage people to remain in the workforce longer.

More widespread use of early retirement schemes mean Government has to fork out monthly pension contributions to people at an earlier age. And, Malta’s comparatively low birth-rate aside, massive social benefits paid out to support the economy throughout the pandemic, and now throughout the energy crisis means the country cannot afford to have more people opting to retire before the statutory retirement-age.

In Malta, the statutory retirement age for those born in 1969 and after is 65, with people being allowed to retire as early as 61 and would receive their full pension so long as they paid 41 years of social security contributions and terminate your employment or self-employment.

When the pandemic rolled around, economists and analysts feared it would cause older people retire from the workforce earlier than they initially planned and make use of early retirement schemes. This is mainly because COVID disproportionately impacted older persons, and initially, the COVID wage supplement excluded persons receiving a pension.

Whether the pandemic would cause an age-specific shock to Malta’s labour market was analysed in a report by Aaron Grech, Chief Officer of the Economics Division of the Central Bank of Malta.

In the executive summary, he mused:

“Labour Force Survey data suggest that initially those aged 60 to 64 withdrew more rapidly from employment than other age groups.” Here, he notes personal considerations older people had to make considering they were advised by the medical community to be more careful due to their vulnerability to the pandemic, and the initial set up of the COVID wage supplement.

However, he explains, “Jobsplus employment register data confirm that this development was not long-lasting and that the proportion of those resorting to an early pension did not rise in the aftermath of the pandemic. In fact, for all ages bar 62, the proportion of those who had been working full-time in 2020 who remained in full-time employment in 2021 was a historical high.”

He notes that the “pandemic does not appear to have had any discernible impact on labour market behaviour of older workers, and the positive economic and fiscal impacts of the gradual rise in pension age appear unaffected.”

He also observed that while studies had correctly estimated the initial impact of pension age rises, they were however too optimistic in their forecast of the proportion of those who stop working at the early exit age. Studies expected 90 per cent of eligible men to remain in the workforce till the statutory retirement age, when the level in fact remained under 80 per cent.

Dr Grech goes on to remark that once an individual reaches the statutory pension age, “the likelihood of them working even beyond that age is improving with each subsequent cohort at a faster than expected rate.”

This will come as good news to Government as pressures on public finances continue to grow.

Dr Grech says the growing number of people working beyond pension age could be a result of a deferral scheme which creates a financial incentive to continue working till 65 years, “with a possible increase in the pension granted of 23 per cent.”

He notes that “pension age increases boosted the full-time workforce in absolute terms by more than had been expected in studies that had been carried out before the pandemic.”