Stuart Fairbairn, General Manager of Growth Investments Ltd within Middle Sea Valletta Life (MSV), speaks to CHARLOT ZAHRA about the state of play of the looming pensions’ reform, among other things
What led you to take up a career in insurance? My first job was with Prudential in the UK. From studying economics, I was always interested in finance, investments and pensions.
My first role with Prudential was for four years, as a Financial Consultant, where I did all the Chartered Insurance Exams and graduated in insurance. From there, I moved on to specialise in pensions and investments.
After Prudential I worked for two companies: one is the largest independent group of financial advisors in the UK, called Tenet Group where I was Director of Pensions Development. We grew the business from 200 advisers to over 7,500 in the seven years I was there.
I also worked as a pensioner trustee for GE Life, looking after specialist pension schemes for company directors, before moving to Malta three years ago to take up pensions’ consultancy with Middle Sea Valletta Life (MSV). More recently, though still playing that role, I was appointed as General Manager for Growth Investments from the beginning of this year.
What led you to leave the UK and join MSV? It was a good opportunity at the time – we were talking about the pensions’ reform at the time and big opportunities for business in Malta to help shape the pensions’ environment, which is something that I did in the UK.
It was a nice move to make and to be involved at the start of the pensions’ reform and to hopefully influence the way it was going was very attractive.
In fact, it turned out to be a good move – obviously we’re still waiting for much of the pensions legislation, but we have re-launched a new retirement plan through MSV which has been very popular, and this is a step forward for retirement planning in general.
What is your view of the Maltese insurance market? From a labour resource point of view, there are some very capable people and there are certainly some very good knowledge levels working for the life offices. The financial advice side is improving as well – I’ve seen good improvements over the past three years in terms of the advice that is available for clients.
The standard of independent advisors and the standard of our intermediaries is improving all the time, and the Malta Financial Services’ Authority (MFSA) is very keen to help develop this.
A lot of the Maltese legislation is based on the UK legislation and the MFSA is doing a great job in promoting consumer awareness, but we could all do more to help educate people of what we need for financial planning.
How hard has the Maltese insurance market been hit by the global financial crisis? So far, the impact has been rather typically minimal – certainly the Maltese investors do tend to be more cautious in general than other investors, therefore many of our clients’ portfolios haven’t been hit as badly as other clients in the rest of the world.
But obviously, insurance companies do have to invest in certain assets. When markets go down, all assets are affected, and this is what we saw last year. However that does bring back the opportunities which we are now seeking to expand upon.
How has MSV’s investment portfolio been affected by the global recession? Like any well diversified portfolio, some asset classes do well when others do poorly. There are inverse correlations between many asset classes. But I am not involved with MSV’s Investment Committee so I cannot provide you with precise details.
What avenues of growth do you envisage for the Maltese insurance market and MSV in particular? There are a number of areas in which Maltese clients need more information so that they can make better informed choices. We’ve recently produced a life insurance calculator to help the Maltese public appreciate how much life cover they need.
We would like to see more clients realising that they need more protection for their life so they could provide for their loved ones in case of death. We can see growth in this area, since life insurance has traditionally been purchased to protect the house, whereas there are greater assurance risks than that.
There is also a savings gap in Malta, where people are not necessarily saving enough for their future, and that’s not necessarily through retirement plans, but also through any long-term savings plan. Again, we expect that side of MSV’s business to continue to increase.
We encourage clients to invest on a regular basis – they do not necessarily have to invest lump sums, but they can make regular payments in order to save for the future.
As a pensions’ consultant, how do you assess the current pensions’ situation in Malta? Things definitely need to change. We had the first stage of the pensions’ reform two years ago, where the state retirement age was increased from 60 and 61 to 65, so that’s something that is happening in the future.
However I strongly believe that that will have to increase still further. We all know there are less people working and more people retiring now, and that will always create a strain on the economy’s finances.
We need to have more people working, whether that’s from more women working or by encouraging people to go back to work after having children, perhaps.
We certainly need more people working to help the economy’s finances and to provide pensions for the future.
Retirement age will have to go up long-term – we’ve seen retirement ages in the rest of Europe going up to 67, 68 and even 70 now to get a state pension. Maltese life expectancy is one of the highest in the world and because people live longer, that creates an additional strain on the government’s finances. To be fair, proportionately the Maltese state pension is generous when compared to other state pensions throughout the world.
Maltese pensions are not necessarily sufficient to have a good lifestyle, but because they’re relatively generous, they add to the strain on public finances.
The public pensions’ scheme, I believe, will have to be changed further. I think benefits will have to be reduced, retirement age will have to be brought up and that create a very strong need for people to take of their own pensions and to start regular savings plans.
Hopefully within the next couple of years, we will have legislation which will enable us to get fiscal incentives and tax relief on contributions that will go towards private pensions and company pensions, which will encourage people to save even more.
We certainly have to address the tax incentive on pensions and on savings in general in Malta. We will continue to discuss with the MFSA and with the government in this regard.
What areas need improvement? I don’t think the actual level of benefits paid by government can continue.
It will need to be scaled down long-term. Retirement age has gone up, but I think that it will have to go up still further. And we need the fiscal incentives for private and occupational pensions.
With an age of 60 for females and 61 for males, retirement age in Malta is one of the lowest in Europe. There are few countries that have got a lower retirement ages than Malta. We know that’s increasing, and that it’s going to be 65 for everyone in the future, but it does need to increase more.
Then there is the Maltese government’s fiscal deficit, and the pensions’ situation will cause a further strain on that deficit.
Looking at the ranking of pensions in Europe, if you look in general at government, private and occupational pensions, Malta is ranked about 16th in Europe. Compared to the rest of Europe, this is very low as the main reason is that the pensions’ system is not seen as sustainable and there are no incentives for private or occupational pensions.
Are you satisfied with the uptake of private pensions in Malta? We’ve seen encouraging signs of people wanting to save in long-term savings vehicles such as retirement plans. Given the situation we’re in at the moment, yes – we’ve seen good business into retirement plans, although we would always like to see more.
I believe the Maltese do save for their future but perhaps they don’t always save the right way.
We know there are many savings in cash, bank accounts, term deposits and local corporate bonds.
Perhaps they should take a more diversified approach and invest in a retirement plan that has been designed specifically for retirement purposes, which would then give them access to a more diversified range of investments.
You were employed with specific purpose of preparing MSV’s strategy for the development of private pensions in Malta. At what point is that strategy now? We re-launched the Retirement Plan last year, so that was the first stage. That retirement plan has been successful for private individuals, and it is also available for businesses to use. So if a business wants to set up a retirement plan for its employees, they can do that.
That was the first stage of our strategy, which worked really well. We’ve also produced some information guides about state pensions and the changes that have happened to them, and this also received a very good response.
We’ve also developed our website to give people more information about retirement planning in general and pensions, which was also very well received.
Now we are working with FinanceMalta to look at changes to the legislation but we’re just waiting for the final changes so that we can go to the next stage of our strategy, which will be the provision of occupational pensions in Malta.
When do you expect to move on to the next stage? That all depends on when the legislation goes through. We know that the Special Funds Act, which is the main pensions’ legislation, has been re-written by the MFSA and we are just waiting for that to go through as an Act of Parliament.
Now once that goes through, we can examine all the pension rules that will be associated with the Act. I was told to expect it in the first quarter of this year, but obviously the economic downturn from last year has affected its plans; there’s no doubt about that. So I think it’s important for Malta to navigate through the global crisis before doing anything that might affect the economy further.
While we’re still hopeful to see the Act this year, it wouldn’t surprise me it would be some time next year or maybe even in 2011. The decision is not mine to make.
What should the authorities do to encourage the uptake of third pillar pensions in Malta?
One of the main themes is fiscal incentives. For example, in the UK if you pay GBP30 into your pension plan, the government will add in another GBP10, so it’s an incentive through the tax regime to encourage people to save. So the British government is subsidising third-pillar pensions.
We would also like to see no withholding tax payable on the funds when they accrue, so that’s another tax area on which we can hopefully agree. And a lot of it comes down to educating people on how much the state pension will be at retirement age. I think that if government was to have clear information about state pension benefits and make accurate forecasts for individuals on how much their pensions will be, that would encourage the uptake of third pillar pensions.
In the UK, you can actually write to the Department for Social Security and ask them for a forecast of what your state pension will be. If we had that in Malta, then people would very easily be able to have an idea of how much they will be getting at retirement, and then that would incentivise them more to do something for themselves.
What led Growth Investments to launch Schroders’ Funds in Malta? Growth Investments Limited is the licensed investment services arm of the Middle Sea Group. It was formed in 1997, when it entered into an exclusive distribution agreement with Fidelity for the distribution of Fidelity Funds in Malta.
The investment markets have changed so much over the last twelve years and we want to offer the public the best of the best when it comes to investment funds. We therefore want to offer additional funds to complement the Fidelity range.
We believe Fidelity is one of the best in certain equity markets, but there are other fund managers that are better in other areas. We realised that Fidelity wasn’t as strong in bond and fixed income markets as certain other companies and so we entered into due diligence and market research on who would be the best bond and fixed income provider, and in our opinion, it is Schroders.
So Schroders have entered an agreement with us and have registered seven funds in Malta –EURO Corporate Bond, BRIC (Brazil, Russia, India, China), Global Energy, Strategic Bond, Global High Yield, European Special Situations and US Small and Mid-Cap Equity.