Maintaining your current lifestyle after you retire may well prove impossible on just a government pension. So, as MSV Life’s Stuart Fairbairn tells Jo Caruana, this is where a private plan could make all the difference to your future

The pension conversation is a hot topic at the moment. Some people believe that the government’s pension pot (which all workers pay into) should be enough to sustain us as we get older, while others believe that there is no way to sustain our ageing population without each person taking responsibility for their own income after retirement.

For many of the people in the latter category, MSV Life has already become a central part of their savings plan since the launch of their private pension products earlier this year – a first for Malta.

“MSV Life has always been a leader when it comes to local innovation and we pushed hard for this product range to be brought to market because we believe it is imperative that people should be able to take control of their own future pension,” says Stuart Fairbairn, MSV Life’s chief officer for business development. “It is unlikely that a future state pension will provide enough for a comfortable living, so a viable alternative was needed – fast.”

Somewhat controversially, Mr Fairbairn believes Malta’s government pensions are currently too generous. “In the UK, the maximum state pension paid out is €8,561 per annum or €164 per week, while, in Malta, it is €11,895 per annum or €229 per week – an incredible 38 per cent higher. Research shows that that simply isn’t sustainable,” he says.

Photo: Chris Sant Founrier

This is because people are generally living longer, so pensions need to be paid for longer, while fewer people are being born and, thus, less are going into the workforce to support those pensioners.

“Government pensions are not funded – there is no separate money pot behind them – so what goes in today, comes out today,” Mr Fairbairn continues. “And this will not change in the future. As a result, with less people working and less money going into the pot, and more people retiring and hoping to take money out, we have ended up with a truly unsustainable system.”

It was this lack of sustainability that prompted MSV Life to develop two personal pensions products for Malta. “People need to have sufficient other sources of wealth to compensate for the fact that government pensions will only just cover the basics of the amounts people need as they get older. It is often understood that you won’t be richer once you retire but it is also hoped you won’t be poorer – so having a plan is vital, and the younger you can get started on it, the better,” Mr Fairbairn says.

Government pensions will only just cover the basics in the future – people will need to supplement that with their own savings

So, MSV Life became the first – and, so far, the only – company to create private pension products for the local market. “We worked with the government on the legislation to enable this to happen. The steps forward have been very positive and there are already incentives in place: those who sign up to a pension plan before the end of 2015 will be given a tax credit of 15% on contributions up to €2,000, and €1,000 in 2016 (although we hope the government will increase this to €2,000 again).

“I do imagine that these incentives will rise in the years to come – as they have in the UK and other countries – but they are a very good start and are already encouraging many people to sign up. After all, there are no other plans that will give you an immediate pay back from the government in this way,” he says.

The idea behind MSV Life’s plans is that they offer you flexibility and choice. There are two distinct products available, depending on exactly what each individual would like to achieve.

The MSV ‘With Profits’ Fund is a low-to-medium risk investment that provides potential growth while protecting you from short-term market volatility. Any money you invest will grow in line with MSV’s declared bonuses. It is a slow-but-steady route for people who want to know their savings are guaranteed and growing at a steady rate.

The MSV ‘Unit Linked’ Funds, meanwhile, is higher risk because you can choose to invest from a range of 40 external investment funds, giving it the potential for higher growth depending on how each fund fares. “This product gives you potential for medium- to long-term capital growth, while also allowing you to create a portfolio to match your investment objectives,” explains Mr Fairbairn.

The plans have also been designed to encourage as many people as possible to start saving for their future, from as little as €40 per month.

“We also understand that, especially when it comes to young people, they may feel nervous about committing to something for such a long time as a set rate per month. So, there is plenty of flexibility linked to the plans, easily allowing them to change the amount that they want to pay in per month or even to take a break altogether for a while.”

One of the few non-flexible elements, though, is the fact that the money cannot be withdrawn before you turn 50.

“This is money that is purely set aside for your retirement and that’s a good thing,” Mr Fairbairn continues. “Regardless of how much you invest, the savings accrued will be there waiting for you; you can start withdrawing them at 50 or wait until a maximum of 75. And once you choose to do so, you can take a tax-free lump sum of up to 30 per cent while the rest will be paid out per month to supplement your government pension.”

Other concerns have also been taken into consideration. For instance, there are guarantees in place if you die before you reach retirement age – at which point the plan pays out 101% of the value to your estate. “After retirement you can then decide what happens to your savings if you pass away; they could be used to supplement your spouse’s pension or paid into your estate,” he explains.

“Now, our main aim is to encourage people – including young people in their 20s and 30s – to really start thinking about their future pensions. Of course, it can seem daunting to think about it, and pension age may feel so far away right now, but it is vital to take responsibility for how you will live in your retirement. It’s important to create a safe and comfortable future for yourself and that starts by saving today,” Mr Fairbairn concludes.