What is a Workplace Pension and What Are The Benefits?

In today’s competitive job market, more employers are helping their employees save for retirement by offering workplace pension schemes

A workplace pension can form a key building block in your retirement planning, offering a way to save for later in life, as well as additional tax benefits. This article explains what these pensions are, who contributes, and how changes in Malta’s 2025 Budget have made them more accessible to all.

What is a workplace pension scheme?

A workplace employee pension scheme is a retirement savings plan set up by an employer, which accepts contributions from both the employer and the employee. These plans are designed to supplement the state pension, providing employees with greater financial security in retirement. They can form a key building block in your retirement planning, offering a way to save for later in life, as well as additional tax benefits.

Updates from the Malta 2025 Budget

Malta’s 2025 Budget introduced changes aimed at expanding access to workplace pensions:

Opportunities for all employees: Employers must now offer an occupational pension plan. While they're not obligated to contribute financially, they must provide employees with the option to participate.
Government contributions for public sector employees: For government employees, the government will match employee contributions up to €100 per month. This initiative leads the way for other employers to support their employees’ retirement savings.

Who contributes to workplace pensions?

Employers have the option to contribute to workplace pensions, but this is not mandatory under the recent Budget announcement. Employees, however, have the right to participate. When both parties contribute, employees’ savings can grow faster.

Tax benefits for employees

Similar to personal retirement schemes, employees who contribute to a workplace pension can enjoy tax advantages.

Here are some examples of how the tax credit may work, based on how much you contribute:

For a contribution of €100 per month (€1,200 annually), you could receive a €300 tax credit.
For a contribution of €150 per month (€1,800 annually), you could receive a €450 tax credit.
For a contribution of €250 per month (€3,000 annually), you could receive the maximum €750 tax credit.

Employees who have a personal retirement scheme and a workplace plan can benefit from the tax credits offered for both.

Tax benefits for employers

Employers who support workplace pensions can also benefit from tax incentives. They may qualify for up to €750 in tax credits per employee and an additional tax deduction of up to €2,000.

How workplace pensions are invested

Workplace employee pensions are often invested in funds, which may be selected by the employee or placed in default funds designed to help savings grow over time. The level of investment risk chosen often depends on individual circumstances, including how close you are to retirement. Some may prefer higher-risk investments with greater growth potential, while others may opt for safer, lower-risk assets. Investment values can fluctuate, so the total savings available at retirement may vary.

What if an employee changes jobs?

If an employee changes jobs, they can take their pension savings with them. The previous employer’s contributions will stop, but the employee has several options:

Transfer the pension savings to the new employer’s scheme (if available)
Convert the savings into a personal retirement plan
Stop contributing and retain the funds in a dormant plan, though this may reduce the final amount available at retirement

When can an employee withdraw their pension?

In Malta, employees can begin accessing their workplace pension savings when they're between 61 and 70 years old. Exceptions may apply in cases of permanent disability or death of the beneficiary.

Depending on the plan’s rules, employees are paid in the following forms:

Regular income payments (programmed withdrawals) or Life Annuity (mandatory)
Tax-exempt lump sum of up to 30% of the plan’s value upon retirement (optional)
Additional cash lump sum (optional)

Workplace employee pension plans provide a valuable way for employees to save for retirement while benefiting from tax advantages. Recent changes have made these schemes more accessible, offering both employers and employees new opportunities to plan for the future.

This article was written by Josef Camilleri, Head of Products and Distribution, HSBC Life Assurance (Malta) Limited. It first appeared in The Business Picture on 3 February 2025.

Approved and issued by HSBC Bank Malta p.l.c., (116, Archbishop Street, Valletta VLT1444). HSBC Bank Malta is a Tied Insurance Intermediary for HSBC Life Assurance (Malta) Ltd under the Insurance Distribution Act (Cap. 487 of the Laws of Malta) and is regulated by the Malta Financial Services Authority.