The taxation of private pensions in Malta : a case study analysis

Abstract

Purpose: The study aims to gather the perceptions of Maltese citizens on the introduction of Private Pension Funds in Malta, with particular emphasis on the method of taxation of such schemes. Furthermore, following a comparison of five scenarios on the matter, the study recommends amendments to the current Private Pension Scheme. Design: A qualitative approach was required to achieve the objectives of the study, as this allowed the researcher to collect a large and diverse sample. The distributed questionnaire proved efficient and effective in extracting the degree of awareness of participants on the introduction of a Private Pension Scheme, and their differing opinions on which attributes of such schemes incentivise investment in private pensions. Findings: The findings of the study point out the lack of awareness of individuals regarding both the introduction and the taxation of Private Pension Funds locally. Moreover, through extracting the nine most favoured attributes of a Private Pension Fund Scheme, it was established that taxing contributions made to, or capital gains accruing to, a fund, would be disincentivising to individuals. Whereas taxation on withdrawals is quite tolerable. Conclusion: The introduction of third pillar pensions was intended to make the current pension system more sustainable, however, Maltese citizens have not been investing in the Scheme. To incentivise the uptake of private pensions, promotion and amendments to the taxation of Private Pension Funds is required. Value: The successful implementation of a Private Pension Scheme is highly important to the sustainability of the local pension system. Although the establishment of the Scheme is quite recent, the lacking uptake by individuals is quite concerning. The findings of the study highlight the importance of informative promotion of the Scheme and a simple tax treatment to attract investment.