The possible impact of pension age changes on Malta’s potential output

Abstract

As from 2012, the pension age in Malta started rising from 61 for men and 60 for women to eventually reach 65 for both genders in 2026. However individuals with enough contribution years will still be allowed to retire at 61. This paper evaluates the effects of the first change in the eligibility age, using employment and beneficiaries data covering that period. These effects are then extrapolated to 2026, suggesting that the pension age rise could result in a increase in the potential labour force of 3.6%. The latter, in turn, implies a boost to Malta’s potential output of 2.1 percentage points. The policy is also estimated to have reduced the deficit to GDP ratio by 1% of GDP by 2026. These results point towards the importance of introducing further incentives to ensure that relatively few individuals opt to retire at 61 rather than work to the standard pension age.