Pension planning is crucial for ensuring a financially secure retirement, as encapsulated in the headline to this article, a quote from George Foreman.
Pension planning involves setting aside money throughout one's working life to build a retirement fund that can provide a reliable source of income after retirement.
Without proper pension planning, individuals may find themselves struggling to make ends meet in their later years, especially as they may no longer have a steady income from employment. So, while it may seem too far off to merit immediate attention, it is ideal to do something about it now – irrespective of the life stage one may be in at the moment. Why? Because a very small amount of money saved regularly that does not affect your lifestyle today, can make a world of difference in retirement!
Pension adequacy
In Malta we are accustomed to the comfort of knowing that state pensions will be paid to retired individuals who meet the set criteria. While it can be a valuable source of income for retirees, the aim of state pension is merely to assure an individual’s access to basic needs and therefore, relying on it alone might prove insufficient.
The adequacy of pensions is partially measured by the degree to which they substitute income from work before retirement. Malta enjoys a two-thirds contributory pension programme whereby an individual receives two-thirds of their salary as a pension after a certain number of years in service. However, there is a ceiling on the amount of income which will contribute towards pension. Thus, the ability for pensions to replace income from work tends to be relatively lower for high income earners. To mitigate this loss of income, individuals are encouraged to save in private schemes with retirement in mind.
Saving for your pension efficiently
Starting a Personal Pension Scheme can be very straightforward and inexpensive, and it could prove to be one of the most important financial decisions taken. Individuals are enticed to save in a personal pension scheme, through an attractive tax credit. As per current pension rules there is a 25% tax rebate on contributions of up to €3,000 yearly - equivalent to €750.
With contributions starting from as low as a cup of coffee daily, most schemes allow for a change in premium along the years or even pausing contributions if circumstances so necessitate. Benefits from the scheme may be withdrawn at any time between the age of 61 and 70. At this point the accumulated pot of funds will become accessible and one is permitted to take up to 30% as a tax free lump sum, with the remaining pot aiming to generate a monthly income. The value of the pot will depend on the amount invested, the length of time over which the contributions have been made, as well as the choice of the underlying investments.
When to start saving for retirement
Simply put, the earlier the better! Saving a little on a regular basis from a young age will deliver substantial benefits, thus the better chance there is to maintain the desired standard of living in retirement. On the other hand, for those who are a little older it is never too late to start saving for retirement. However, the older one is, the more contributions are needed in order to build a nest egg for retirement. So, in whichever stage of life one is, it is recommended to start saving for retirement since this will impact future standard of living!
We can help!
At Bank of Valletta, we can help you plan for your retirement by introducing you to Private Pension Schemes. Contact us on bancassurance@bov.com to set an appointment with one of our financial advisors and kick start your future today!
Bank of Valletta p.l.c. is an enrolled Tied Insurance Intermediary under the Insurance Distribution Act, Cap. 487 of the Laws of Malta for MAPFRE MSV Life p.l.c. (MMSV). MMSV is authorised under the Insurance Business Act, Cap. 403 of the Laws of Malta. Both entities are regulated by the Malta Financial Services Authority.
The value of your investment may go down as well as up and you may get back less than you originally invested. Past performance is not a reliable indicator of current or future results. Changes in the rate of exchange of currencies may also affect the value of investments. Tax treatment depends on the individual circumstances. Tax legislation and the amount of rebate may change in the future.