Pensions in Malta are an important aspect of the country’s social security system. Pensions play a vital role in providing financial support to retirees. Helping ensure a decent standard of living during retirement. In Malta, the pension system is managed by the Department for Social Security. Which operates under the Ministry for the Family, Children’s Rights and Social Solidarity.
In this article, we will delve into the intricacies of the Maltese pension system.
The Social Security System in Malta
The Social Security Contribution System is the cornerstone of Malta’s pension framework. It is compulsory for all employed individuals. Employees, employers and the government contribute to the National Insurance System. Which provides benefits not only during retirement. But also in case of disability, illness and unemployment.
The Social Security Contribution System entitles you to:
- A state pension otherwise known as the social security pension. As established in the Social Security Act. This is the standard retirement pension for individuals who meet the eligibility criteria.
- An invalidity pension should an individual be unable to work. Due to an injury, disability or illness. Once the individual reaches retirement age. The person will be in receipt of the state pension.
- A survivor’s pension is paid to the surviving spouse. Or dependent children of a deceased pensioner. At retirement age the surviving spouse will receive the highest pension. That between the retirement pension and the survivor’s pension.
- A widow’s/widower’s pension. Given in the event that one of the spouses passes away before retirement age. At retirement age the surviving spouse will receive the highest pension. That between the social security pension or the widower’s pension.
- Unemployment benefit which lasts up to 6 months. Being in proportion to paid up social security contributions.
- Free healthcare services.
State Pension in Malta: A Comprehensive Guide to Retirement Planning
Malta operates a state owned contributory pension system. While in employment individuals must make contributions to the National Insurance System. To be eligible for a full pension in retirement. Full pension means two-thirds of pensionable income. The pensionable income is capped to a specific amount. Individuals must have a consistent employment history. Or contribute of their own accord if they are self-employed or have gaps in their employment.
Contributions are shared between employees, employers and the state. Contribution rates are calculated based on a percentage of an individual’s income. But capped to a specific amount. Note that contribution rates and thresholds may change over time.
As part of pension reform efforts the standard retirement age is set to increase to 65 years. This applies for both genders.
Individuals reaching their retirement age need to apply for a pension in Malta. Persons can contact the Department for Social Security. Or visit their local Social Security Office for guidance.
Besides contributory pensions, Malta also provides means-tested benefits. To individuals with limited income and assets who may not qualify for a full pension.
It’s important to note that pension policies and regulations may change over time. So it’s advisable to consult with relevant Maltese authorities or financial advisors.
For more information contact the Social Security Directorate General. Offices are situated at 38, Ordinance Street, Valletta. An individual resident in Malta can call on 2590 3000 or 153. For international calls phone on +356 21255153. Or email any queries to social.security@gov.mt or servizz@gov.mt.
Social Security Contribution Rates in Malta
Get a good understanding of the social security pension system in Malta. It enables you to plan ahead for your retirement. Knowing your monthly pension amount helps you determine the amount you need to save now. To be able to have the best quality of life once you retire.
The Social Security Act stipulates social security contributions. Based on two classes of employment. Known as Class One (I) and Class Two (II). Class One (I) refers to employed individuals. Class Two (II) refers to self-employed and self-occupied persons.
The term self-employed has a different meaning in the Maltese Social Securities Act. Self-employed as referred to in everyday talk is a self-occupied person. In fact, the Act stipulates that a self-occupied person is a self-employed individual. Who earns income from trade, business, profession or vocation. Where such income exceeds €910 per year.
Class One (I) social security contributions are based on the individual’s basic weekly earnings. An individual is classified into one of the 6 categories. The individual, employer and state pay the same social security amount. The rule of thumb is that an individual pays 10% of the basic weekly wage. But, there is a fixed cap on the weekly social security contribution. During 2023, for those born up to 1961 it is €39.28. While for those born after 1st January 1962, it amounts to €51.60. The established cap is adjusted on an annual basis.
Social security contributions paid under Class Two (II) amount to a weekly rate of 15% or a fixed flat rate. During 2023, the fixed flat rate for those born up to 1961 is €58.91. Those born after 1st January 1962 pay a fixed flat rate of €77.40. The rate paid depends on the prior year’s profits.
Understanding the Social Security Pension in Malta
Persons born on or before 1951
A male individual engaged as an employee had to retire from employment at 61 years. Whilst women could retire at 60 years of age. To qualify for a full pension 50 social security contributions had to be paid on an annual basis. Payments needed to be made for 30 years.
The amount of social security pension is calculated on the yearly average basic wage. From the best 3 consecutive calendar years in the last 10 years.
Persons between 1952 and 1961
Individuals engaged as employees have different statutory retirement ages. Those born between 1952 and 1955 can retire at 62. The retirement age for persons born between 1956 and 1958 is 63 years. Whilst individuals born between 1959 and 1961 can retire at 64 years.
Persons born between 1952 and 1955, have the social security pension calculated on the average annual basic wage. From the best 3 consecutive calendar years within the last 11 years.
Persons born between 1956 and 1958, have the social security pension calculated as the yearly average basic wage. From the best 3 consecutive calendar years within the last 12 years.
Persons born between 1959 and 1961, have the social security pension calculated as the yearly average basic wage. From the best 3 consecutive calendar years within the last 13 years.
To be in receipt of a pension an employee needs 50 social security contributions paid on an annual basis. Payments need to be made for a period of 35 years. The pensionable income’s cap is set at €17,933. The two-thirds pension income is calculated on this amount. The upper limit is adjusted every year for the cost of living.
An individual can opt to work even though reaching pension age. Whilst still be in receipt of the full pension income. Bear in mind that the person would need to pay social security contributions. Until the individual reaches 65 years of age. These contributions are not paid or credited to the person’s contribution history.
Note that persons can still retire at 61 years of age. Subject that contributions have been paid for a period of 35 years. But such persons cannot hold a gainful occupation until reaching statutory retirement age.
Persons born on or after 1962
Persons born on or after 1962 have their retirement age set to 65 years. To qualify for a pension an individual must have paid 50 weekly contributions for 35 years.
The social security pension is calculated on the yearly average basic wage. During the best 10 calendar years over 40 years. Calculation of the state pension is based on two-thirds of the pensionable income. But, pensionable earnings are capped at €22,138. The capping on the pensionable income amount is subject to an annual increase. Subject to a pre-defined formula which takes into account inflation.
Other Pension Entitlements in Malta
What is the Age Pension?
Age pension is a means-tested non-contributory benefit. Offered to individuals who may not qualify for a retirement pension. Such as an individual who has not paid the minimal social security contributions. Yet, this is not an automatic entitlement. A person has to apply for an age pension. The Department assesses the applicant’s income and assets. Only those who do not meet the established amounts qualify for this pension.
What is the Service Pension?
The social security contribution system was introduced in Malta in 1979. Before its introduction employees received a service pension. The service pension was paid by their employer. Today, service pensions are no longer in existence. The only exception is the Treasury Pension. This pension is paid to employees engaged by the government in 1979 or earlier.
Private Retirement Plans in Malta
Besides the state pension system, many Maltese contribute to private pension plans. To supplement their retirement income. Contributions to private retirement schemes in Malta are voluntary. These plans serve as a complementary retirement savings option. For individuals who wish to supplement their social security pension.
Throughout the years the government has encouraged people to save for retirement. It has motivated people to invest in personal private pension schemes. With the government offering tax credit incentives to promote participation. Making them an attractive option for retirement planning.
Private pension plans are tailored to meet the specific needs of participants. The contribution rates vary and depend on the specific plan chosen. In general, contributions are set as a percentage of the individual’s salary. Or a flat amount paid on a monthly basis. An individual must work with a financial advisor. To determine the most suitable contribution rate to achieve the set retirement goals. Consult the terms and conditions of the chosen pension plan.
Note that withdrawals from these schemes are subject to certain conditions. Such as an individual is not allowed to withdraw funds before reaching a stipulated age. Thereafter, you can withdraw a stipulated lump-sum of your savings. With the rest of your savings paid as a monthly annuity. Providing a steady stream of income during retirement.
Private pensions plans are managed by various financial institutions. Regulated by the Malta Financial Services Authority (MFSA).
Taxation of Pensions in Malta
Pensions in Malta are generally subject to taxation. Pension income is added to any other income and taxed at progressive rates. There may be exemptions and deductions available based on individual circumstances. In the case of married couples income up to €12,700 is tax exempt. Income up to €21,200 is taxed at 15%. So on and so forth. Pension income from private pension plans is taxed at a flat rate of 15%.
Malta offers favorable tax treatment for retirees. Making it an attractive destination for retirees from around the world. Additionally, Malta has a double taxation treaty network with many countries. Which can help retirees avoid paying tax on their pension income. Both in Malta and their home country. It’s essential for retirees to understand their tax obligations. Seek advice from tax professionals. To ensure they take full advantage of any tax benefits available to them.
Malta’s pension system is designed to provide financial security and flexibility for retirees. With a combination of the social security pension and private pension plans. Individuals have options to build a robust retirement plan that suits their needs.
