Should I Transfer my Pension to Malta?

The global nature of business has meant that many people move from country to country to either further their careers or to experience other cultures. This often results in individuals becoming ex-pats (expatriates), i.e. residing in a country that is not their native country. Along this journey, an individual can build up various pension pots. We are often faced with questions regarding overseas pension transfers and in particular, the rules pertaining to how Irish pension transfers are treated.

What is IORPS?

Under IORPS (Institutions for Occupational Retirement Provision Scheme) legislation, occupational pension funds in the European Union benefit from the principles of free movement of capital and free provisions of services. This legislation sets common standards ensuring the soundness of occupational pensions and better protects pension scheme members and beneficiaries through rigorous prudential standards.

IORPs facilitate cross-border activities by introducing new transfer rules and by clarifying procedures, including the roles of authorities in the home and host Member State and how they shall communicate with each other. It encourages IORPs to invest long-term in growth, environment and employment-enhancing economic activities by modernising investment rules.

Can I Transfer My Pension Abroad?

IORPS created a legislative basis for transfers from PRSAs* and from Occupational Pension Schemes to similar arrangements available elsewhere in the EU. Note this does not apply to Personal Pensions, Buy out Bonds, or Approved Retirement Funds.

The Revenue’s view is that transfers will be permitted to an overseas arrangement for bona fide reasons and is not primarily for the purpose of circumnavigating pension tax legislation and revenue rules.

 *There is a taxation upon a transfer of a PRSA overseas so it may not be the most advantageous course of action but we can discuss this with you should you wish.

Where Can I Transfer My Pension to?

Malta is a preferred destination for bona fide pension transfers as it is English speaking and a full member of the European Union.

Who is a Maltese Pension Transfer Suitable for?

The Maltese option is only suitable for certain individuals with the circumstances outlined below:

• Non-residents or future non-residents.
• Individuals who have overseas benefits and they are looking to consolidate.
• International executives who can fund benefits in different jurisdictions and wish to base their benefits in the most flexible jurisdiction.

A Maltese pension transfer is not suitable for somebody who plans on living and accessing the pension benefit in Ireland as this is not a bona fide transfer and could cause taxation issues down the line.

What are the Benefits of Malta Pensions?

Avoids potential Double Taxation that can happen with Approved Retirement Funds (ARFs)

Most people tend to favor an Approved Retirement Fund with the balance of their pension fund after the tax-free lump sum has been taken.

Even if you are no longer an Irish tax resident, Irish taxes will be applied on any withdrawals made from the ARF as it is deemed Irish Source income – These taxes are applied at source by the pension provider before you receive a net payment.

This may lead to double taxation as you may also be liable to tax in your country of residence.

As ARFs are not technically a pension, you may not get a refund or a tax credit for the taxes that are paid in Ireland.

Even if a tax credit is applied, the tax in Ireland may be at a much higher rate than the tax in the country of residence.

Benefits can be taken from age 50

There is no need to retire from your employment or to sell down shares to start accessing your pension, however, we would recommend leaving the funds as long as possible to allow for growth to help afford your desired retirement lifestyle.

Lump sum at 30% and is uncapped

This can make a significant difference when there is a large pension pot in Ireland as the tax-free lump sum that can be taken at retirement is 25% and is capped at 200K with the next 300K being taxed at 20%.

A client with a pension pot of €2 million would receive a tax-free lump sum of €600K in Malta as opposed to €200K in Ireland.

Should the individual access the tax-free lump sum as an Irish tax resident, the Irish Lump Sum rules would apply, i.e. 200K tax-free with the next 300K being taxed at 20%.

No Fund Cap

There is a €2 million pension fund cap in Ireland with anything in excess of this being taxed at 40%. There is no such cap in Malta.

This can be significant for anybody who has a large pension pot. For example, somebody with a €1.5 million pension pot may be in danger of breaching the €2 million threshold from sustained investment growth compounding over time.

If a client moved this pension to Malta the €1.5 million would be crystallized. The client can recommence funding an Irish pension up to the PFT minus the €1.5 million. The Maltese pension can now grow at an appropriate risk-return level without fear of breaching the €2 million thresholds.

Flexible Drawdown

In Ireland, the client must draw down 4% – 6%, of the ARF annually (depending on the age of the client) even if the client doesn’t need these funds. This creates an unnecessary payment of tax. If the pension is transferred to Malta, the client can draw down funds as required.

Death Benefit

In Malta, if the client passes away the spouse of the pension owner will receive the value of the pension at the time tax-free.

In Ireland, the ARF will remain intact with a change in the name so the spouse will still have to be taxed on future drawdowns.

Benefits Pass Directly to Beneficiaries

In Malta, the benefit will be passed directly to the named beneficiaries without the need for probate.

In Ireland, the ARF will form part of probate which could take a significantly longer time.

There is no inheritance tax applicable in Malta, although there could be an inheritance tax liability depending on the taxation rules of the disponer and/or the the disponer.

Maltese Pensions can be Multi-Currency

In Malta, clients can invest in the currency of their choice. This can be crucial for those who want currency diversification or for those that have built pots in various currencies from working abroad and do not want to face exchange rate risk.

How is my Malta Pension Taxed?

It is worth noting that Taxes will depend on where you are you are tax resident at the time of withdrawals. It is advised to review the Double Taxation Agreements between Malta and your country of residence. Malta currently has over 70 Double Taxation Agreements in place with countries around the world, but you need to study each individual Double Taxation Agreement to understand where the tax liability is. The tax may be imposed in Malta, shared with Malta, or be taxed in your country of residence at retirement. The Maltese pension provider will seek evidence of your tax residence status in your country of retirement if you want your pension to be paid out gross of taxes. Ther must be a DTA in place, otherwise, you will be taxed in Malta at their personal income tax rate of up to 35%.

Are Maltese Pensions Secure?

Malta has carried out a program of reforming its financial sector legislation in line with international best practice. The country is actively involved with the Organisation for Economic Co-Operation and Development (OECD) and the EU and is not considered a tax haven. Malta has benefited greatly from this program and the financial services industry is the fastest-growing sector of their economy. This has made Malta a popular destination for pension transfers.

Want to Find Out More?

Each case is unique and brings with it its own financial planning challenges. Please contact Opes Financial Planning Ltd. to see if transferring your pension to Malta would be advantageous for your circumstances.