Pensions and Retirement

Financial capability is much broader than having the adequate education and information to make good financial decisions, but rather a mixture of financial knowledge, attitudes, skills and experiences that will help you to make useful money management decisions that fit your own set of needs. In simple words, financial capability is the ability to manage money well. Managing money can be a very simple task, yet most of us struggle to do it well. It involves budgeting, saving for the future and tracking your spending habits. This is where ĠEMMA comes into place. Ġemma–Know, Plan, Act is your trusted independent financial capability portal. Our main aim is to be a source of education on retirement income and financial capability writes

Mark Bezzina –B.Com (Hons) (Melit), Pension and Private Pension Expert, ĠEMMA.

At Ġemma we have organised several projects to help people manage their money well. We organise webinars on different topics, courses and training for different age groups and needs, and have also developed applications to help people budget and spend within their means. Our budget planner app for example, is a financial capability education tool that allows users to list their expenses against their income to achieve financial goals. Transactions can be sorted on a daily, monthly or weekly basis, and intuitive visualisations help show whether one’s spending lifestyle is sustainable or not.

For children, we have also developed Karus - an app that allows children to learn money management skills by scheduling tasks with a different number of points. Parents or guardians need to approve the completed tasks to grant the points which can be then assigned to goals or taken as pocket money. For younger people, there is also an interactive, educational game called Money Monsters for children in primary school.

All of this is being done to help people prepare for their future and work for having a good standard of living, especially after retirement, when the state pension might not be enough to sustain the life that we are accustomed to.

Comfortable Living And Pension Awareness

Your pension in Malta will be calculated on two-thirds of your salary, subject to a capping. First and foremost, to arrive at an individual’s final state pension, the income formula for someone born after the 1st January 1962 is based on the best 10 years of the last 40 years. The maximum pensionable income as of 2023 is €26,831, which means, that you will not get more than 2/3 of this salary as a state pension. Do you think that you can live comfortably with this amount, especially when you consider the rising cost of living?

There is no perfect time to start retirement planning. At different stages in life, your financial profile may look different. However, it is advisable to begin retirement planning in the early years of life. It helps spread the investments over an extended period, thereby reducing the burden on your regular income.

Private Pension Schemes For Additional Income

The main scope to save in a private pension scheme is to have an additional source of income after retirement, and hence, to not solely depend on the pension provided by the state. There are various schemes offered by different companies, where the amount invested per day can be less than the price of a coffee. Some private pension schemes in Malta are offered as capital guaranteed, where the capital invested cannot go down, but only go up through the interest provided. Other schemes may be unit-linked, which means that the value of your pension might go up or down, depending on the fund chosen. In other words, the private plan chosen can cater to various levels of risk appetite.

In addition to the return offered by the scheme, individuals may be eligible to receive a tax credit of 25%, up to a maximum set by the

Government. Under current legislation, the tax credit for 2023 can apply to a maximum contribution of €3,000 (resulting in a maximum tax credit of €750 per person).

As per current legislation, a pension scheme cannot be withdrawn before you reach 61 years of age or after you reach 70 years of age. Once you are in this age bracket (between 61 and 70 years old), up to 30% can be taken as lump sum, and the rest must be taken as a pension. For people worrying about what will happen in case of death, the company will generally pay the investment value to your estate, or designated beneficiary in case of death before the plan term expires.

Voluntary Occupational Retirement Pension Schemes

Nowadays, there are also Voluntary Occupational Retirement Pension Schemes (VORPS). As part of the national strategy to increase the number of persons who prepare for their retirement by saving in incentivised tailored pension products, the VORPS framework was introduced in 2017. For an employer to introduce this scheme, there is no financial obligation – in terms of a mandatory pension contribution that an employer must pay. The employer may enter into an agreement with a VORPS provider in which staff employed may also contribute into the scheme. Numerous tax incentives for both the employer and the employee that contribute into the scheme are in place and by carrying out this type of scheme, the employer is enhancing its reputation and becomes an “employer of choice”.

The trick to a private pension scheme is to start saving as early as possible. By starting early and by making adequate and regular contributions, a private pension scheme will help to provide an additional source of income for people and hence, individuals who opt for a private pension scheme can continue to enjoy life as they were doing before retirement. People can continue to enjoy their favourite restaurants and continue to travel as they were accustomed to. The best time to start saving for your retirement is when you receive your firstever paycheck. The second best time? This month.

Any statement about taxation is based on our understanding of current law and tax practice. Future changes in law and taxation, or your own financial circumstances, could affect the treatment of the private pension plan and the amount of tax payable. In order to ascertain your exact tax status, you should seek specific and professional tax advice in relation to your tax obligations under the Personal Pension Plan.

This article is not designed to offer financial advice and should not be used in isolation when making a decision about your financial planning. You may wish to seek financial advice before starting a long-term savings contract.