Let’s think pensions

It is 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 in 2015 and 2017 adapted to incentivise the setting up of personal and occupational pension schemes with the introduction of the Personal Retirement Scheme Rules (PRS Rules), S.L.123.163 and the Voluntary Occupational Pension Scheme Rules (VOPS Rules), S.L. 123.175 respectively.

Since then, various amendments to the rules and other relevant subsidiary legislation have continued to try to enhance the tax benefits attached to such pension schemes.

Main relevant considerations at a glance

Features of a qualifying pension scheme
Fiscal measures on contributions to a qualifying occupational pension scheme
Fiscal measures on contributions to a qualifying personal pension scheme
Withdrawals of pension income

Features of a qualifying pension scheme

Qualifying retirement schemes for the purposes of the VOPS Rules and the PRS Rules may take the form of a retirement scheme registered under the Retirement Pensions Act (Chapter 514 of the Laws of Malta) or a long-term contract of insurance satisfying certain prescribed criteria.

For a scheme to qualify under the VOPS Rules or the PRS Rules, it needs to allow individuals to start withdrawing benefits as from the age of 61 years but not later than the age of 70 years (some exceptions may apply), in line with the objective of sustaining one’s income after retirement.

Fiscal measures on contributions to a qualifying occupational pension scheme

An employer who makes contributions towards a qualifying scheme in terms of the VOPS Rules for the benefit of employees, will benefit from:

An annual tax credit amounting to the lower of 25% of the amount of contributions and €750 for each employee in respect of whom the contributions are paid. The employer’s profits relieved by the tax credits remain untaxed when distributed up to the ultimate beneficial owners; and
up to €2,000 tax deduction per employee per annum with respect to such contributions made.

Contributions made by the employer towards a qualifying scheme in terms of the VOPS Rules are not considered as taxable fringe benefits for the employees receiving such benefit.

Employees who voluntarily make additional contributions into the employer’s scheme, will benefit from an annual tax credit amounting to the lower of 25% of the amount contributed during a year and €750 per annum.

Furthermore, a qualifying pension scheme enjoys a specific tax exemption under Maltese law (except on income from Maltese immovable property) and therefore gains from investments may accumulate within the pension pot free of tax.

Fiscal measures on contributions to a qualifying personal pension scheme

Individuals who make contributions towards a qualifying scheme in terms of the PRS Rules are eligible to a tax credit amounting to the lower of 25% of the amount contributed during a year and €750 per annum.

Similarly to a qualifying occupational scheme, due to a specific tax exemption which may be applicable, the pension fund may accumulate without the incurrence of tax.

Withdrawals of pension income

As from the age of 61 (exceptions may apply in the case of permanent disability or death), a beneficiary of a pension scheme may start withdrawing pension income from the qualifying scheme. At that stage, the individual will have an option to withdraw 30% of the accumulated pension fund amount in the form of a tax-free cash lump sum.

Are you thinking about introducing a work pension scheme for your employees? Are you thinking about your own situation after retirement?

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 efficiencies and other benefits, but also paves the way to ensuring a workforce which will likely be more committed to their role.

Our 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 advice taking into consideration your needs and circumstances.