Case Study on Retirement

Authors: Ann Bugeja, Christine Borg Millo & Thea Bonett

An employee working as a cleaner has been employed since 2007, but her new contract terms were signed in 2011. The original contract is very old, with some very specific clauses regarding retirement, which in her case, is at sixty-three (63) years old.

Her standard of work has dropped considerably over the past six (6) months, so much so that it is affecting the morale of the wider team. The team is aware of her age (she is sixty-six (66) years old) but they do not want to complain too much about her diminishing ability to carry out the same level of work as the others. The Company is keen to understand what their options are to explore retirement.

Retirement

The concept of retirement refers to the period in which a person decides to permanently stop working. The common retirement age is that of sixty-five (65) years, however this age varies depending on the year of birth of the employee.

Retirement in Malta is regulated by:

• The Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta, hereafter referred to as ‘The Main Act’); and
• The Social Security Act (Chapter 318 of the Laws of Malta).

However, it is always important to also consider the relevant clauses which are included in the contract of employment and that therefore have been agreed upon between the employer and the employee.

Retirement age in terms of Law

Although the normal pensionable age is sixty-five (65) years, if the employee was born during the calendar years 1956 to 1958, the pension age is sixty-three (63) years instead.

This reflects what is included in article two (2) of the Social Security Act (Cap.318 of the Laws of Malta) which states:

““pension age” means sixty-five (65) years of age:

Provided that;

(a) saving the provisions of paragraph (ii) hereof, in the case of a person born on or before the 31^st December 1951, pension age shall be sixty-one years;

(b) in the case of a person born during the calendar years 1952 to 1955, pension age shall be sixty-two years;

(c) in the case of a person born during the calendar years 1956 to 1958, pension age shall be sixty-three years;

(d) in the case of a person born during the calendar years 1959 to 1961, pension age shall be sixty-four years”.

In this case, since the employee was born in 1957, sub-paragraph (c) would be relevant, and she would have attained the mentioned age of sixty-three (63) on the in March 2020 (by way of example), and hence is past her due date of retirement.

At this stage, the Employee can begin claiming her Social Security pension, if she meets the proper requirements.

A retiring Employee’s eligibility for pension depends on the provisions of the Social Security Act in Part V ‘Pensions In Respect of Retirement’. Under article 44, a person is entitled to a pension in respect of retirement if:

• On the date of his retirement, he satisfies the relevant contribution conditions; and
• He makes a claim therefor within six (6) months of such date. When he does not make a claim within six (6) months of his retirement, the pension shall be payable with effect from the day on which the claim is made.

Along with these requirements, the Social Security Act also lists other requirements based on the type of pension the retiring person is entitled to, such as a Retirement Pension, or Increased Retirement Pension or National Minimum Pension or Increased National Minimum Pension or the Guaranteed National Minimum Pension, or a Two-Thirds Pension.

In terms of the retirement options, the Employment and Industrial Relations Act in the final proviso of article 36(14) holds that “the employer can terminate the employment of an employee when the employee reaches pension age as defined in the Social Security Act”.

By virtue of this, it is possible for the Employer to terminate the Employee’s contract under article 36(14) “without giving notice and without any liability to make payment as provided in sub-article (10)”.

Employers may also wish to allow the employee to remain working even after they reach retirement age, through a mutual agreement by both parties to accommodate the employee’s needs. This goes contrary to the compulsory retirement age stipulated by the Social Security Act, but voluntary continuation of work is not prohibited at law. Following this, the employer may, at any time, ask the employee to retire, even if they have already attained pension age. The normal course of retirement will then follow.

What happens in Practice

In practice, employers are encouraged to give a retiring employee a note of termination, and in some instances, employers also opt to give an ex-gratia payment as a sign of good will and to thank the employee for their services. However, there is no obligation to give such notice or payment, and it is entirely at the employer’s discretion.