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The state pension system in Malta

As increasing numbers of clients of Dr Werner & Partner are moving their place of residence to Malta in the course of establishing a company on the island, as a result they will also henceforth pay contributions into the Maltese pension system. For this reason, the following article deals with the basic features of the state pension system. On the one hand, relocation to Malta and/or moving one’s place of residence here creates the necessary substance already covered in our previous articles and is additionally accompanied by considerable personal tax benefits (e.g. non-dom status).

However, before we consider the pension payment amounts and arrangements more closely, we will first direct our attention to the system of pension contributions.

Whereas in Germany the fiscal burden is very heavy due to a large number of different insurance contributions, in Malta there is only the so-called “social security” contribution which is paid via the income tax deduction process. Theoretically, this contribution simultaneously covers all types of costs such as health insurance contributions as well as social security and pension contributions. The fact that social security contributions are very low in Malta compared with most other European countries is partly attributable to the following social and demographic structures:

-Young Maltese people live for a comparatively long time at their parents’ home (often until their mid-30s).
-Most Maltese acquire several properties in the course of their lifetime (mainly by inheritance).
-Older Maltese people frequently live within the family circle until their demise.
-Private medical care and private health insurance contributions are approx. 50-70% cheaper than in mainland Europe.
-The minimum wage only slightly exceeds €4 an hour.

As a result, the country bears a lighter burden of expenditure on state social security benefits, accompanied by a lesser need for social security contributions than in some other European countries. As in Germany, half of the contribution to social security is borne by the employer and the other half by the employee. Contributions amount to around 10% of monthly gross pay, but currently a maximum monthly rate of €166 applies. This means, for instance, that even in the case of a monthly income of €5,000 or more, monthly social security contributions will not exceed the maximum amount of €166 for the employee or the employer. This is of great interest, for example, to companies considering the idea of opening a branch in Malta, as this makes the expected costs for this very easily calculable.

Now to the payments aspect of the Maltese pension system. As social security contributions in Malta are very low as described above, the state pension is naturally also correspondingly limited. The generally applicable arrangement is for the last wage or salary to act as the basis for assessment, and the monthly pension must amount to 2/3 of this sum. However, this arrangement only applies up to a certain maximum limit. Currently we can speak of a maximum monthly pension of €1,208.33. This means then that even if you receive a monthly wage or salary of €5,000, for example, until you reach retirement age, your pension will not amount to more than €1,208.33 per month. Moreover, it is not possible in Malta to claim a one-off payment of the state pension.

Due to Malta’s accession to the EU in 2004, contributions paid into the Maltese pension system will be credited to you in any other European Member State, making it possible for you to provide proof of uninterrupted payment of contributions on later calculation of your pension.

We are already advising a number of clients in this respect in the course of establishing a company or moving their place of residence and the associated payroll accounting. We would be pleased to advise you too in these matters or, if appropriate, to recommend a broker of private health insurance or another financial service provider partnering with us.

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