Pension Income in Malta

Pension payments are payments received after a period of time based on past contributions. There are different types of pension payments that one may receive. However not all pension payments are tied and dependent on employment income and taxpayers may also opt to make voluntary pension payments over and above mandatory contributions which boost their pension upon retirement.

Although there may be different types of pension payments; these can be categorised under two main headings:

1. Contributory Pensions: are mandatory with pre-established guidelines provided by Government on the amount of payments to be made on a periodic basis.
   • Contributory pensions are linked to employment income and reflect contributions made by an employer to a pension fund for and on behalf of an employee. The employee in turn will have an equivalent contribution deducted at source from their net employment income arising from employment with the same. Contributions are therefore made by both the employer and the employee and are based on the net employment income of the employee, with higher contributions linked to higher levels of income. Contributions vary depending on age and the average weekly net income earned. Contributory pensions in Malta and their respective categories can be found on the following link.
   • Self-employed individuals are also required to make mandatory pension contributions. Contributions by self-employed individuals are to be made every April, August and December for each year of activity with rates also found on the following link.
2. Voluntary Contributory Pensions: Non-mandatory, voluntary pensions are pensions that taxpayers have made contributions to on a voluntary basis over a period of time. Non-contributory pensions can be set up by a taxpayer at any point, with monthly or annual contributions being made. The amount paid is determined and decided by the taxpayer himself and are not necessarily dependent on the individual being in present or past employment. Such pensions provide taxpayers with a future return over a number of years and may be withdrawn at an agreed period of time once the individual has reached retirement age. The distribution of any pensions may be subject to tax. The applicable rate of tax is based on the tax status of the individual when receiving their pension, whether received as a lump sum or as an annuity or as a combination of both.  It is important to note that non-contributory pensions can apply to both employed and self-employed individuals, with both having the option to make such contributions.
   

Taxpayers may end up receiving annuity payments after retirement from both contributory and non-contributory pensions. Payments may also be received from local and foreign sources.