Published on the Malta Independant¸ issue 19th December 2010
It is in the news again. Pensions have stolen the Christmas limelight¸ the social partners are up in arms and are discussing the latest recommendation for a mandatory second pillar. A study group is proposing that a second pension requirement should be introduced for those who are 45 and under. The unions do not relish more austerity measures¸ saying that their members have borne the brunt of the increased energy prices in recent years and do not have spare cash to save for the extra pillar.
One could ask why the study group failed to suggest the introduction of SIPP (self-invested personal pension) schemes in Malta. Typically¸ if a worker wishes to have a more flexible pension¸ he or she can opt to transfer his or her pension to a SIPP and still receive full tax relief. Naturally¸ such a move will be taken after consulting an MFSA-approved independent financial adviser. A SIPP is basically an investment plan that allows a person to save for retirement in a tax-efficient manner and can be a fantastic way of helping to achieve a more comfortable lifestyle after retirement. Approved SIPPs can invest in a wider range of funds and investments¸ including stocks and shares¸ unit trusts¸ Sicav’s insurance company funds and commercial property. SIPPs have become extremely popular investment plans in the UK¸ as they offer a greater diversity of investment.
They give the option of making personal investment choices¸ although there is always the need to consult an adviser. In the UK¸ SIPPs – which have been in fashion for over 15 years – attract full tax relief (in Malta it should reach 35 per cent) while higher taxpayers can receive an additional 18 per cent tax relief. Additionally¸ there should be full exemption for Capital Gains Tax in a SIPP pension¸ and there are unlikely to be any inheritance tax issues. The investment product usually offers a variety of investment options¸ including property.
Investors can potentially receive sizeable tax breaks on any property they purchase and¸ unlike regular contributions under the standard PAYE scheme currently mandatory under the first pillar¸ will be able to borrow (eg obtain a mortgage) against the assets of SIPPS in order to leverage buying power and thus achieve a superior return on investment. This financial product will¸ in turn¸ help revive the sluggish domestic real estate market with over 50¸000 vacant premises in need of better use. A well-designed SIPP option will also revive Malta’s fledging Stock Exchange¸ as it offers more opportunities for investment. Although to date SIPPs have not been on offer¸ we rejoice in the possibility of them being introduced here now that it appears that the second pillar will become a compulsory part of pensions.
This is why PKF hosted a seminar entitled EU – Urging a Pension Reform in July to rekindle interest in such a delicate issue. It is true that the political class did not shed many tears on the subject¸ but then they reminded us that the Pension Study Group (chaired by David Spiteri Gingell) had been instructed to issue its final report this year. However¸ the seminar proved its worth as it brought the main stakeholders together to discuss and analyse the current situation¸ to objectively assess pension reform and to examine the options open to the government¸ unions and the private sector alike. Neither the Minister responsible for social policy nor t