Once our working lives are over and our children are settled into their own independent lives, we hope to enjoy our golden years. It's a chance to see the world, pursue our own interests and live a life free from stress and money woes.
But how achievable is this, really?
If you’re relying solely on the state, then the answer is sadly 'not very'. For many retirees, Malta's state pension barely covers the cost of day-to-day living, let alone leaving anything aside for travel and leisure.
That's why it's a good idea to supplement your state pension with a private plan if you live and work in Malta. This can help to cushion these costs and give you some breathing space to live the life you choose.
Malta’s state pension is paid for by social security contributions. It's designed to act as a safety net, giving everyone a basic standard of living.
The monthly social security contributions you make if you're an employee or you're self-employed will go towards this pot. Your contributions are calculated according to your income; the more you earn, the more you pay.
However, there's a cap on how much pensionable income you can receive. The precise numbers change according to inflation and other economic factors. That means there's often a significant shortfall between the money you earn at the height of your career and the state pension you can collect in retirement.
If you don't have a private pension plan, you may find your retirement income doesn't stretch as far as you might have hoped.
A private pension plan is a long-term savings plan with specific tax incentives.
Unlike the state pension, which is a mandatory contribution for all Maltese citizens, a private pension is completely voluntary.
By paying into a private pension while your earning power is at its height, you can create a safety net to give you a better standard of living when you reach retirement.
You can start your own private pension plan from as little as €60 a month. You may also be able to take advantage of certain tax incentives to make the money you pay into your private pension plan go further.
You’ll be able to access your private pension plan between the ages of 61 and 70, as long as the plan has been in place for at least 10 years.
The income you can expect from a private pension depends on the type of plan you've selected and the performance of any underlying investments.
Private pension plans are generally tied to an investment strategy. This can be worked out according to your individual retirement goals and risk profile.
You might select a lower-risk investment strategy which will usually deliver more reliable, but modest returns. Or you could decide on a more high-risk strategy. This opens up greater rewards - but could also leave you with less than you initially invested.
A pension plan is a long-term contract, so you have to keep contributing until the agreed date when you can begin drawing from it.
When you reach retirement age, you may choose to withdraw a cash lump sum of up to 30% of the value of the plan at the date of withdrawal. This lump sum is exempt from tax in Malta. The remaining 70% has to provide an income at retirement, and will be paid out in regular instalments over an agreed period of time.
One attractive feature of a private pension plan is that your contributions may be eligible for tax credits. A tax credit of 25% on a contribution up to €3,000 applies (maximum tax credit €750 a year).
Remember, it's never too early to start contributing towards a more comfortable retirement. Speak to a financial advisor today to discuss your risk profile and the kind of investment strategy that could work for you.
