It’s no secret that Malta’s state pension system can no longer be considered as the only source of pension income in the future for the workers of today. It is not a sustainable pension system and it is now more apt than ever to start considering other options.
Malta’s tax legislative framework was adapted to incentivize the setting up of personal and occupational pension schemes in 2015 and 2017 with the introduction of the Personal Retirement Scheme (PRS) rules and the Voluntary Occupational Pension Scheme (VOPS) rules respectively.
Since then, various amendments to the rules and other relevant subsidiary legislation have continued to enhance the tax benefits attached to such pension schemes and make them more appealing. The latest of such amendments, Legal Notice 98 of 2022, Pensions (Tax Exemption) Rules, can indeed be a game changer in this regard.
The tax position before this important tax exemption was that withdrawals from a PRS or a VOPS would be chargeable to tax as pension income, except for a 30% commutation which the beneficiary is entitled to withdraw as a tax-free lump sum within a prescribed timeframe. Hence the remaining 70% of the accumulated savings (the pension fund) would be subject to tax in the hands of the beneficiary.
This tax position has now changed.
As the name suggests, the Pensions (Tax Exemption) Rules now provide for an exemption in respect of pension income – therefore with this amendment all withdrawals (the pension) from the PRS/VOPS would be tax exempt (rather than just an exemption on 30% of the pension fund).
This exemption is being introduced gradually over a period of time, starting from a tax exemption on 20% of the pension income derived in 2022, up to a full tax exemption on all the pension income derived from a PRS / VOPS as from 2026 onwards.
Apart from this important new tax exemption on the withdrawals from a PRS/VOPS there are, as you may be aware, other benefits (both tax and non-tax) related to such pension schemes. Examples include tax credits for employers and employees, exemption from fringe benefits tax to employees, certain tax deductions for employers, etc.
Specifically in respect of occupational pension schemes, now is therefore the time for employers to evaluate even further the introduction of such a pension scheme for their employees.
Planning for one’s retirement often gives a sense of comfort in knowing that today’s efforts will reap fruit tomorrow. Additionally, extending such plans to one’s workforce not only helps the community at large and results in tax and other benefits, but paves the way to ensuring a workforce which will likely be more committed to their role.
Our specialised Pensions team is well placed to assist you and your organisation in analysing possible advantages and implications of joining a personal retirement scheme or introducing an occupational pension scheme for your employees, and to provide you with specific guidance taking into consideration your needs and circumstances.
