Workplace pensions are coming to Malta next year, with public sector workers likely to benefit ahead of most private employees.

Also known as occupational pensions, workplace pensions are separate from state offerings – paid through national insurance contributions – and private policies taken out by individuals at their own expense.

An employee typically agrees to funnel a portion of their salary into a pension scheme offered by their workplace, with their employer usually making contributions as well.

In some countries, such policies are obligatory – the UK, for example, requires employers to offer employees meeting certain criteria a workplace pension – while, in others, they are voluntary.

In Malta, while all public sector employees will be enrolled in an occupational pension with the option to opt out, private employers will not be forced to offer such schemes at launch, though Finance Minister Clyde Caruana told Times of Malta he hopes the move will encourage them to follow suit.

“I believe that by doing this, the government will set the ball rolling, encouraging private operators to offer pension schemes to better compete in the labour market.”

Malta Employer Association (MEA) director general Kevin Borg agreed employers will likely be encouraged to offer workplace pensions, noting the move could help them attract staff in the “cut-throat” job market.

However, he expressed caution at the move, suggesting tax breaks could be a better incentive for private operators to offer such schemes.

When are working pensions being introduced?

Occupational pensions will open for both the private and public sectors in the second half of next year and discussions on how the schemes will operate will need to have been concluded by the end of June.

Will I automatically be signed up?

It depends. Public sector workers will be automatically enrolled but given the choice of opting out.

It is too early to tell whether private employees will be automatically signed up; discussions between the government and the Malta Council for Economic and Social Development (MCESD) and fiscal advisory council on the topic are due to open next year.

If Malta decides to go the same way as the UK, where workers are automatically enrolled if they earn more than £10,000 per year, this could be the case.

But in light of the government’s decision not to force private companies to offer occupational pensions at launch, this appears unlikely – at least for now.

Ultimately, it is likely to be left up to individual companies to decide whether their employees are automatically enrolled, with the government having only announced arrangements for public sector workers at the time of publication.

Will my employer contribute?

If you are a public sector worker, yes; the state will match your contributions up to a maximum of €100 per month.

Caruana has not ruled out further increases though, saying any future changes will be “up to the finance minister of the day”.

If you work for a private company, it is still too early to tell but based on what other countries have done, it is reasonable to expect different employers to offer different levels of contributions – if they choose to contribute, that is.

Announcing workplace pensions in his budget speech in October, the finance minister said private companies will not be forced to make contributions.

Can I choose which scheme I am signed up to?

Maybe, but it is still too early to tell.

Whether private employees get a choice about which fund they sign up to is expected to be one of the details being hammered out in the discussions next year.

Think about it at an early age; by 50 or 60, it will be too late- MEA director general Kevin Borg

Meanwhile, management of the public pension fund will “definitely be done by a private operator, but the government will provide guidelines on some things such as how the money is invested”, Caruana said.

He noted the government still needed to “finalise details” about how the fund will be set up. 

Will my company offer a workplace pension?

That will be up to your employer, though Caruana has acknowledged there is likely to be low uptake in the private sector when working pensions first open.

“At least it’s a start; I’m not saying we will have half of all companies signed up [to occupational pension schemes] straight away, but it’s about building momentum.”

Caruana did not reveal whether private sector schemes will later be made compulsory.

But with firms not compelled to introduce working pension schemes, what is their incentive to do so?

“Given that the government – the largest employer – is moving in this direction, such a move will have a ripple effect on the private sector,” Caruana said.

“The competition for talent, which is becoming increasingly scarce, will put more pressure on employers to offer more incentives to attract and retain their workforce.’’

Anything else?

Caruana confirmed that similar to private pension schemes, tax credits on occupational pension schemes will be available to both public and private sector workers with the maximum €750 annually remaining the same.

Workers with both a private and an occupational pension scheme will benefit from such tax credits for each scheme, he added.

Tax credits help employees save money by writing off the value of their pension contributions from their taxable income.

What do employers think?

The head of the employers’ association believes that while some employers will probably sit on the fence to “gauge the experience of those who take the plunge”, others are likely to eventually sign up to better attract staff.

“If the majority of employers offer them [workplace pensions], others will probably join ranks,” Borg said, adding he expected unions to “jump on this”, with access to such schemes likely to feature in future industrial negotiations.

Cautioning against “intrusion” into private pensions, however, he said the government could better encourage provision and take-up of pension schemes by offering “more tax incentives for both employers and employees”.

Commenting on the government’s decision to automatically enrol public sector workers, Borg said the MEA’s position was that it would “rather there is an opt-in for both private and public sector employees”.

He also called for greater “financial literacy”, encouraging workers in their 20s to plan ahead: “The state pension isn’t going to get you anywhere so think about it at an early age; by 50 or 60, it will be too late.”