The government will cap the tax incentive on voluntary private pensions at €150 a year under proposals contained in a long-awaited Bill on the subject.
Finance Minister Edward Scicluna said in April that the details of the scheme would be announced within weeks, but there have been numerous delays since then.
The government is tying the tax incentive to special individual savings accounts or insurance policies recognised by the Commissioner of Revenue.
Credit cannot be carried forward and can only be made against income in the year in which premiums are paid
Those who open such an account or take out such a policy will enjoy a tax credit of 15 per cent of the value of the contribution made in one year, or €150, whichever is the lower.
The credit cannot be carried forward and can only be made against income in the year in which the premiums are paid.
An alternative incentive is that the interest paid on amounts of up to €1,000 a year into approved accounts would be tax exempt.
Sources said the details of the scheme have not changed since they were presented to various stakeholders a few months ago.
The initial reaction was lukewarm, with the fiscal incentives not considered substantial enough to motivate people to start saving, which was the main point of the exercise.
Another source said insurance companies would need to assess whether the take-up of the schemes would be enough to justify their administrative requirements.
The introduction of third pillar pensions was an electoral pledge.
However, both this government and the previous administration were under pressure to introduce both this voluntary scheme and a mandatory occupational one.
A working group that had been set up in 2004 outlined several steps that needed to be taken to make pensions not only sustainable from a government finance point of view but also adequate from the point of view of a pensioner trying to maintain a reasonable lifestyle after retirement.
Changes were made to the pension paid by the government – called the first pillar pension – in 2007, extending the retirement age and raising the maximum amount that can be received as a pension. However, many complained the reform did not go far enough.
In 2010, the working group reassessed the models and came up with 45 recommendations, repeating its call for a mandatory second pillar pension to be built up jointly by employees and their employers, as well as the private, optional schemes.
A new task force has since been formed which is again working on the modelling, taking into account government policies like free child care and pensioners working beyond retirement age, as well as migration forecasts.
These have had a noticeable and positive impact because they help boost the workforce and therefore provide a growing base of people paying for Malta’s ageing population.
Addressing a business breakfast on the subject last month, Finance Minister Edward Scicluna sought to allay concerns over the future of pensions and their sustainability, saying the situation was “not alarming”.
He acknowledged there was an issue but stressed Malta was still in time to “tweak” its pension system.
Employers speaking at the event stuck to their 10-year-old position in objecting to the introduction of a mandatory second-pillar pension, which, they argue, would burden them with more costs.