Pension Management Industry Spreads Its Wings

Already a leading market for British expats pensions, Malta sets its sights on the wider European pensions market.

Malta’s international pension management industry has fast developed into a flourishing segment of Malta’s finance centre; however, the sector is facing a somewhat uncertain future. The island offers solutions for high-net-worth individuals looking for an investment vehicle, international workers planning for retirement and global corporations seeking pension schemes for their staff. Malta currently caters mainly to the UK market, and thus far no one really knows what impact Brexit will have on expat pensions based in Malta. Nonetheless, the country’s professionals believe that the industry can expand by building on the finance sector’s wide experience in asset management.

QROPS Destination

The creation of international pension plans is a recent development, as the increasing mobility of people and jobs around the world prompted a shift away from the traditional idea of pension provision as a purely domestic service. Malta’s emergence as a financial service centre first created a market for UK-linked pension products. Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced in Britain in 2006 to make the process of transferring pensions to another country for UK pensioners living abroad simpler. In 2009, the Malta Financial Services Authority (MFSA) procured confirmation from the British tax authorities that pension schemes established on the island, and regulated by the MFSA, are eligible for recognition as QROPS. Therefore, pension rights can be transferred into it without a UK tax charge. The interest in Malta as a QROPS jurisdiction has been on the increase ever since this recognition was obtained, and the country has become the main market for UK expats’ pensions. Today, newly set up schemes can self-certify with Her Majesty’s Revenue and Customs (HMRC) in the UK as QROPS. In addition, a retirement scheme licensed in Malta is also eligible as a Qualifying Non-UK Pension Scheme (QNUPS). Money transferred into these schemes is free from UK inheritance tax.

Malta is also making a name for itself in relation to Institutions for Occupational Retirement Provision (IORPs). These schemes can be set up in Malta to be passported to other EU and EEA member states. With IORPs, the EU is seeking to establish a second pillar for a pan-European pension system, and the country’s professionals believe that Malta is the ideal base for operators of such schemes. However, the occupational pension fund sector has not yet risen to the fore, and according to practitioners the main reason is that the majority of service providers are not em- bracing the added complexity of such offerings, including IORPS, and the lack of a sustainable domestic occupational pension fund tax regime in Malta.

Expanding Segment

Malta licensed its first six pension schemes in 2010. By the end of 2017 the island was home to 50 different pension schemes. The rapid growth that the sector is experiencing is due, in part, to the appeal of Maltese policies around regulation and taxation of international pensions. Growth was also boosted when changes to the QROPS legislation resulted in numerous jurisdictions, such as Hong Kong, Guernsey, Cyprus and New Zealand, no longer complying. They were forced to de-list a large proportion of their schemes, and some of those operators relocated to Malta. Operators on the island were also able to mirror the UK’s rules around pension flexibility which were introduced in 2015, which meant that clients can withdraw a 25% initial commutation lump sum followed by up to 75% of the fund taken as advanced income. Greater flexibilities have also been introduced in case of death, including the potential for a full payment of the value of the pension to the beneficiaries

As in other areas of financial services, Malta’s approach to legislation and regulation in this sector aims at providing the necessary safeguards to ensure the smooth operation of pension schemes and pension funds. International pensions are governed by the Retirement Pensions Act which requires the registration and ongoing supervision of pension schemes, as well as service providers and scheme administrators, investment managers and custodians, through the MFSA, making Malta an attractive location for accrued pension funds for expatriates living around the globe. Under Malta’s regulation, pension schemes are also fully reconciled and audited right up from member level to the overall scheme operation. This is something that does not happen to such a degree in other countries and gives great comfort to pension holders.

For Europe and Beyond

Maltese QROPS and QNUPS are ideal for those who have previously built up UK pensions but are no longer a UK resident, such as British expatriates and foreign nationals who have worked in the UK and have accumulated pension funds there. Malta’s extensive double-taxation agreement network consisting of some 70 treaties, offers further advantage for QROPS schemes held in Malta. The UK’s regulations require QROPS jurisdictions that tax local residents on their pension income to also tax payments to non-residents at the same rate. An exemption to this is where the QROPS jurisdiction has a double tax treaty with the individual’s country of residence. In Malta, QROPS schemes have already been designed for expatriates living in the US, interacting with the country’s double taxation agreement with the US. There is also scope for more Europe-focused business as most of Malta’s tax treaties are with EU countries.

Malta remains an attractive QROPS domicile for expats living in the European Economic Area (EEA) after the introduction of the Overseas Transfer Charge (OTC), a 25% levy on QROPS transfers, in 2017. Expats living within the EEA do not pay the charge, while those living outside need to pay unless they live in the same country as their QROPS is based. However, the fear is the charge could extend to pension transfers with European Union countries once Brexit has taken place. While the full terms of the UK’s exit from the EU will remain unclear for several years, the industry says QROPS appear to be vulnerable to change and this might affect future QROPS growth.

While Malta has seen the breakthrough in the international pension sector due to its attractiveness for QROPS and QNUPS, it does not exclude coming to similar agreements with other countries. Mobile workers across the European Union are said to account for 5% to 10% of the Union’s workforce, and the island sees an opportunity to cater for the pension needs of companies and individuals from EU markets.

International Competitiveness

Malta’s competitive cost base offers advantages to both pension providers and policyholders. Companies can benefit from operating costs, which are 20% to 30% lower than in most other EU countries, cost-savings that can be translated into lower contributions and higher gains for scheme participants. The island’s support infrastructure is also becoming stronger by the year. The country boasts a sophisticated telecommunications network and is serviced by a hard-working, English- speaking workforce. This goes a long way towards reassuring potential clients that any advice they require is always readily available. Moreover, many of Malta’s law firms offer pension providers assistance in setting up, while accountancy and related services, such as business consultancy, are widely available.

Towards the Future

The outlook for Malta’s international pensions industry remains positive. With increased global mobility, the need for expat pensions and pension solutions for international companies is increasing. Although EU regulations have been in place to facilitate the set-up of pan-European pension plans, the marketplace has not really provided for cross-border pensions, despite demand from multinationals and individuals. However, barriers related to pensions for mobile workers are gradually being lifted. While industry professionals believe that different taxation and regulatory systems will impede growth in the field of occupational pensions in the short term, they are convinced there is already great potential for private pension plans. By the time market momentum grows, Malta will have had enough time to perfect its service offerings and build up a track record, making it well placed to serve the pension requirements of the wider market.



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