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Pensions for Expats in Malta

Submitted: November 2013

Malta is often considered as a place to retire. Good climate, one of the best healthcare systems in the world, English-speaking country, lower taxes, cheap villas … all these criteria are taken into account. However, prospective retirees should also check if Malta has a social security agreement and/or a tax treaty with their home country. As always in international planning, the existence of a treaty can actually change the whole picture.

Many expats may come to Malta for reasons other than retirement. Some may, for example come for higher education. Others may have been offered a job in Malta. Typically, this latter category of expats should rather be concerned with pension saving whilst they are in Malta.

Fundamentally, Malta’s public superannuation system is hardly any different from the UK. There is a contribution-based State Pension with low contribution rates and low payouts. This is combined with a means-tested pension credit for low-income pensioners. Otherwise, you need to save privately.

The bad news is that Malta has yet to expand its private superannuation system. These are regulated by the Special Funds (Regulation) Act 2002. It is just possible to build up a pension pot wherein capital growth is tax-free.

In other words, Malta is an attractive jurisdiction for UK expatriates who consider transferring their UK pension pot to Malta under QROPS regulations (list of qualifying Malta-based funds available here). However, there is no scheme under which pension contributions attract Maltese tax relief. This means that Maltese workers currently have no choice but to save with their after-tax income, although there are proposals to introduce schemes with tax-deductible contributions.

State Pension

State Pension is also referred to as “Two Thirds Pension”. This is because this benefit is supposed to be two thirds of your past pensionable earnings.

Contributions

State Pension is a social insurance benefit. Consequently, pension rights accrue as you pay Maltese National Insurance Contributions (NICs). There are class 1 contributions and class 2 contributions. The former are paid out of salaried employment whereas the latter are paid by the self-employed (“self-occupied persons” in Maltese law).

As a general rule, employees pay 10%, employers pay a further 10%, and the Government tops up another 10%. Class 1 NICs are subject to a minimum of around €850 per year and are capped at circa €2,100 per year. In effect, this involves an annual cap of around €6,300 per year.

If you are on class 2 NICs, you must pay 15% of your insurable earnings (minimum: ~ €1,300; maximum: ~ €3,100).

Benefits

You must reach State Pension age before applying for a benefit. It is 62 at the moment, but it is scheduled to gradually rise to 65 for individuals born in 1962 or later. You are also expected to have worked for at least 10 years prior to retirement and to have contributed for around 14 years.

In 2013, the maximum State Pension you can get is about €226.04 per week.

Residence-based benefits

If you have not paid enough into the system, you may qualify for a non-contributory age pension. This is a means-tested benefit, i.e. you must be on a low income and your capital must not exceed €14,000 (€23,300 for married couples).

You must be aged 60 or over to apply for a non-contributory age pension. The maximum you can get depends on your marital status, and is between €81.9 and €126.74 per week.

In addition, the Government may pay taxpayer-funded benefits, such as a Senior Citizens Grant or a cost of living bonus.

International matters

Social security agreements

Malta has a social security agreement with Canada and Australia. As Malta is an EU member, regulation No 1408/71 is also applicable. These international agreements are primarily designed to avoid discrimination and double social security coverage. They may cover employees as well as the self-employed.

In addition, social security agreements may “totalise” your periods of contributions in Malta and in your home country. This is particularly helpful if when you have to meet a minimum number of years of social insurance contributions.

International superannuation planning

Superannuation schemes are generally tax-efficient products. Thus, they are heavily regulated in order to avoid undue tax base erosion. In Malta, you are more likely to be concerned with the tax treatment of foreign superannuation schemes. Thus, you should check:

  • how your foreign pension arrangements are taxed whilst you are in Malta, and
  • how your pension payouts will eventually be taxes (be wary of double taxation if your pension contributions were not deductible back home).

Your home country may have a tax treaty with Malta to avoid double taxation on your foreign pensions. As a general rule, pension payouts are only taxable in your country of residence, but you should check if you don’t fall under an exception.

Retaining your foreign pension arrangements may be the most practical option if you don’t intend to stay in Malta. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to seek professional advice regarding this matter.

 

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