Auto-enrolment pension plans could worsen brain drain, warns Malta Employers’ Director General

Kevin J. Borg, Director General of the Malta Employers’, has expressed concern over the Government’s proposed reform that would see eligible employees automatically enrolled in a new occupational pension scheme.

The Government has recently opened a public consultation on a proposed pension reform that would automatically enrol eligible employees into an occupational scheme, though participation remains voluntary, with an option to opt out.

Under the proposal, the Government has pledged to match contributions made by public sector employees up to a maximum of €100 per month. In practice, this means that if an employee contributes €100 monthly, the Government will double it to €200.

In contrast, employer contributions in the private sector remain voluntary. Each company must decide whether it can afford to offer any additional contributions at all – a disparity that, according to Mr Borg, risks deepening the divide between employment conditions and work practices in the public and private sectors.

Private sector at a disadvantage

Speaking to MaltaCEOS.mt, Mr Borg reiterated that the Association has long been warning of a “brain drain” from the private to the public sector.

“Sometimes they leave for reduced hours, even if it means at a lower wage. Sometimes they leave because there is generally less discipline and accountability in the public sector,” he said.

“The fact that the Government is promising to double contributions – up to €100 a month – will only worsen the brain drain, as not all private companies will be in a position to offer that kind of support,” he warned.

He continued: “Some companies simply aren’t profitable enough, and in highly price-sensitive sectors, this would be an unmanageable overhead.”

He added that, along with existing public-sector perks like flexibility and reduced hours, the new pension scheme will serve as yet another incentive drawing workers away from private industry.

Mr Borg also highlighted how the Government is effectively using taxpayers’ money – much of which is generated by the private sector – to fund pension incentives that may inadvertently accelerate the shift of talent into the public sector.

Administrative burden and long-term impacts

Mr Borg also flagged operational and financial concerns for private employers, particularly the added administrative burden that automatic enrolment would impose.

“Even if an employee opts out, private sector employers would still be responsible for handling the administrative process,” he said.

Asked whether SMEs might feel social or market pressure to mirror the Government’s incentive, Mr Borg argued that these challenges are not about company size.

“It’s not a question of how big or small a company is; it’s about the sector in which it operates – and how hard it is to find and retain employees. And I don’t know of many sectors where that isn’t already a problem.”

Mr Borg anticipates many employers will initially adopt a “wait-and-see” approach, monitoring competitors before deciding whether to match contributions as an attraction and retention tool.

“However, once momentum builds, more employers may feel pressured to contribute. Eventually, I think it will become part of collective agreements and seen as another company perk.”

The Association had previously advised the Government to opt for a fully voluntary scheme with stronger fiscal incentives, rather than an opt-out model. The incentives introduced years ago failed to promote voluntary occupational pensions in a meaningful way, he noted.

Looking ahead, Mr Borg emphasised the importance of sound regulation and improved financial literacy to ensure the scheme’s long-term success. Reaffirming its longstanding position, the Malta Employers’ Association has reiterated its call for full transparency in the public procurement process related to the scheme.

“There definitely needs to be sound financial regulation overseeing this scheme. And above all, there must be greater financial literacy, so employees appreciate the value of investing in their future, as opposed to ‘living in the moment’,” he concluded.

Kevin J. Borg / LinkedIn