Malta opens consultation on auto-enrolment pensions regime

Malta Finance Minister Clyde Caruana launched a public consultation on 18 June on a proposed auto-enrolment occupational pension scheme to reform Malta’s retirement savings sector.

Malta’s pension system currently operates on a pay-as-you-go state pension model, which is facing accelerating demographic pressure. The government said the old-age dependency ratio was projected to increase dramatically from 27.1% in 2022 to 65.4% in 2070.

At the same time, the public scheme benefit ratio is projected to decrease from 39% to 32%, meaning many retirees will struggle to maintain their pre-retirement standard of living. This is below OECD averages.

To address these challenges, the government has been progressively introducing tax incentives to encourage the uptake of voluntary private pension savings. Malta has operated Voluntary Second and Third Pillar Pension Schemes since 2015, but only six licence holders currently offer qualifying occupational pensions for a total of only 4,667 members – about 2% of the working population.

These participation rates remain critically low, said the government, highlighting the urgent need for structural reform to ensure long-term pension adequacy. It is therefore proposing to enhance the current occupational pensions framework through the introduction of ‘auto-enrolment’ to broaden employee access to retirement savings.

An auto-enrolment regime requires all employers to automatically enrol all eligible employees into an occupational retirement scheme, overcoming behavioural barriers. The consultation document said that research from similar schemes in other jurisdictions shows that participation rates can increase from under 30% to over 80% following the implementation of auto-enrolment.

Eligible employees

Employees will be considered eligible if they are:

• A Maltese tax resident or habitually work in Malta.
• Between the age of 18 and less than 10 years away from retirement age.
• Working full-time or on a part-time basis where the remuneration is their primary source of income.
• Not in a probationary period.

Third-country nationals (TCNs) will also be eligible after six months of employment in Malta or at the end of the probation period, provided they hold a valid residence and work permit.

All eligible employees must be paying Social Security Contributions in Malta. Employees younger than 18 or less than 10 years away from retirement age can opt in voluntarily. Self-employed individuals can also join voluntarily.

Enrolment

An employer in Malta will be obliged to automatically enrol employees in an occupational retirement scheme that is authorised by the Malta Financial Services Authority on the day the employee becomes eligible unless the employee specifically elects to opt out.

Employers must provide employees with key information about the scheme within four weeks of becoming eligible and explain how to opt out. If an employee opts out, the employer must offer re-enrolment every year.

Contributions

Under the proposed system, contributions can be made by the employee or jointly by the employee and the employer, with employer contributions remaining voluntary.

The proposed minimum employee contribution is being set at €50 per month. Contributions will be deducted through payroll, and the employee must confirm in writing.

Employees will benefit from the same level of tax credits applicable to individuals in the case of other pension schemes. This is in addition to any other pension-related tax benefits.

Employers can voluntarily top up employee contributions, also through payroll. Employers will also benefit from the tax credits applicable to employers under occupational pension schemes.

To establish a benchmark, the Maltese government has committed to pay an additional contribution for public sector workers, up to a maximum of €100 per month.

The scheme must permit employees to have a contribution break at any point in time to allow for instances such as statutory leave or career breaks. Employers that also contribute to a scheme will only be required to contribute where a salary for an employee is being paid.

How Sovereign can help

It is proposed that auto-enrolment in Malta will be introduced to the private sector no later than six months after its implementation in the public sector, which is planned for the end of this year.

Employee benefit packages are vital consideration attracting and retaining the best talent, as well as to maintaining a loyal and committed workforce. Occupational pensions or savings scheme are now seen by many as a key part of remuneration.

Under the current consultation, it has been proposed that only products regulated under the Retirement Pensions Act will be eligible to offer occupational pension schemes. This means that any products currently being provided as insurance products will not be suitable for employees under the new regime.

Sovereign’s occupational pension schemes are fully regulated under the Retirement Pensions Act, making them suitable for use under the proposed auto-enrolment framework.

Sovereign has extensive experience in designing and operating occupational pension and savings schemes. Our clients range from large international businesses to smaller firms just starting out. We work with employers to design benefit plans tailored to their specific needs.

In jurisdictions such as Guernsey and Gibraltar, where ‘auto enrolment’ already exists, Sovereign has implemented compliant schemes. We can assist employers in Malta to meet their new obligations. Our experienced retirement planning teams can support the entire process, from design through to implementation.