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Pensions
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22 February 2008
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"The Prime Minister announced that when, not if, the Second Pillar is introduced it will be introduced in a mandatory manner." This is what Minister Dolores Cristina was quoted as saying in an interview with Business Today of the 8th March 2006. The amendment to the Social Security Act presented in parliament has confirmed this statement, writes Franco Xuereb, Head, Bank of Valletta Bancassurance Office.
The Bill amending the Social Security Act gives the Minister the right to introduce mandatory second pillar pensions. This new law, however, has continued to shed uncertainty within the financial services sector as it again failed to address the important questions of the "who, when and how much" issues.
The new Bill focuses on the much debated First Pillar Pension, or as it is more commonly known, the Government Pension. As was previously announced by the Prime Minister, it is being proposed that retirement age is gradually increased to 65 years for both sexes. Furthermore, after a wait of 25 years, the maximum pensionable income shall be gradually increased from Lm6,750 to Lm9,000 per annum.
Another proposal included in the Bill is the increase of National Insurance contributions from 30 years to 35 years for persons between 46 years and 55 and to 40 years for those under 45 years. Furthermore, persons under 45 years of age will have their first pillar pension calculated on the average earnings of the best 10 years within the last 40 years prior to retirement.
An extremely interesting point included in the Bill is the treatment of Voluntary Third Pillar Pensions. The Bill is proposing that contributions made to Third Pillar Pensions Schemes which provide for the payment of regular income or benefits after or upon reaching retirement age, may be exempt from Income Tax. The Bill further defined Third Pillar Pension Schemes as funds governed by the Special Funds (Regulation) Act or the Insurance Business Act. It is understood that the actual exemptions will be announced in the next Budget.
It is common knowledge that albeit the lack of legislation, a good majority of the working population have long been planning for their retirement through the various investment products available on the local market. This new legislation is obviously an excellent opportunity for the Maltese investor to take a look at their portfolio and, if necessary, realign their investments in order to make the best use of the tax incentives which will eventually be announced.
Registered address: Bank of Valetta p.l.c., 58 Zachary Street, Valletta VLT04 |
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