Transferring your Pension to Malta

Pension rules (known as IORPS II) currently in place mean there is the potential for Irish pension schemes to be transferred overseas irrespective of whether you have employment overseas or not, although it will be on a case-by-case basis. We would only consider facilitating a transfer if the individual has “bona fide reasons and is not primarily for the purpose of circumventing pension tax legislation and Revenue rules”. 

 

Why do people consider transferring Irish Pensions overseas?

The main reason an overseas pension is considered is the fact that Irish pension products can cause taxation issues upon drawdown for individuals who are no longer Irish residents. For the most part, Irish people access the 25% lump sum of their pensions with the balance then invested in an Approved Retirement Fund (ARF):

• The funds remain invested where you draw off a taxable income in retirement.
• You are forced to withdraw 4% from age 61.
• This increases to 5% from age 71
• The ARF provider will apply PAYE taxes on any withdrawals.

 

The last point complicates matters for people who no longer live in Ireland as Ireland keeps the taxing rights of the ARF rather than withdrawals being paid Gross and then a non-resident paying their relevant taxes in their country of residence. 

This can lead to potential double taxation as the ARF holder is subject to tax in Ireland and possibly further taxation in their country of residence. Most Double Taxation Agreements don't have provisions contained in them for an Approved Retirement Fund (ARF) so the ARF holder may not get a credit for the tax they paid in Ireland.

It should be noted that other pension payments such as Defined Benefit Payments or Annuities can have PAYE exclusion orders applied to them by Revenue meaning payments are made to non-residents Gross with no Irish taxes being applied and then taxed accordingly.

 

Maltese Retirement Schemes offer much more flexibility than Irish pension schemes so should be considered if you do not think you will remain in Ireland.

 

What are the benefits of transferring an Irish pension to Malta?

• Benefits can be accessed from age 50 once you lived overseas for 5 years.
• Maltese pensions can be invested in a wide range of investment instruments, however, occupational pension schemes are governed by the strict investment principles of IORPS II meaning that a diversified portfolio must be implemented.
• Malta has a significant amount of Double Tax Treaties (DTA’s) in place which means that funds can be paid Gross and then taxed at the prevailing rate in the country of residence.
• There is the possibility of taking a 30% tax-free lump sum from the pension which is more than the 25% allowed in Ireland. If you are deemed to be an Irish tax resident, your lifetime tax-free threshold of €200,000 will apply; the next €300,000 of a lump sum would be liable at 20%.
• Much like Irish pensions, a Maltese pension benefits from tax-free growth.
• There is no imputed distribution like in Ireland, i.e. post-retirement Maltese pension holders are not forced to make taxable withdrawals on an annual basis like in Ireland.
• A Maltese pension will pass to beneficiaries tax-free in the event of death. The beneficiary may be subject to inheritance tax depending on their country of residence.
• There is no lifetime funding threshold like in Ireland which currently stands at €2 million.
• A Maltese pension can hold a multitude of currencies should you wish.

 

What are the drawbacks of transferring an Irish pension to Malta?

• There will be costs incurred so such a transfer is only really viable for pensions with a value of over €500,000.
• There are strict investment principles required which require consistent monitoring of portfolios to ensure these are satisfied. This generally rules out individuals who wish to manage their investments themselves.
• A Maltese pension scheme can only take transfers from certain Irish pension products.

 

It should be noted that those who carry out overseas pension transfers and remain in Ireland may be creating an unfavorable potential taxation issue for themselves as lump sums remitted back to Ireland (even if tax-free in the other jurisdiction) may become taxable in Ireland depending on individual circumstances.

Transferring an Irish pension to Malta may not suit every circumstance and not every pension scheme will permit it, so it is important to seek advice. Opes Financial Planning Ltd is ideally placed to provide you with the required expertise to assess whether this should be considered or not.

 

Want to find out more?

It is important to seek professional financial advice to explore the options available to you.

Contact us if you would like to find out more about the Maltese option.