Most of us live in the hope that one day we will retire from work; at the same time we think that this day is far off in the future. This mind-set tends to drive us in taking the financial implications of retirement lightly.

Life-expectancy has increased, meaning that retirement years may well exceed the 20-year mark. More often than not, retirement heralds a reduction in regular income and an increase in expenses, which impact the standard of living we are accustomed to.

Our new retiree lifestyle may cause a surge in expenses related to travel, entertainment, new hobbies, settling in an alternative home, medical costs and a plethora of other unplanned contingencies. So it definitely pays to prepare well for all this.

Back in November 2014, the government had launched the Third Pillar Pension scheme, which aims to encourage Maltese residents to further supplement and increase their pension savings by investing in private products offered by local banks, life insurance companies and other financial institutions.

Furthermore, to motivate Maltese residents towards investing in a private pension, the government has also introduced an incentive whereby investing in a private pension will allow them to save on taxation. Currently, when opting for a Personal Pension Scheme, Maltese resident taxpayers are able to obtain a tax credit against income tax chargeable in Malta. This is applicable on any contributions made by a person to any personal retirement scheme or premiums paid in respect of a qualifying policy of insurance.

Starting your pension plan early is a wise decision since the maturity amount is influenced by how much you contribute, how regular you are in your contributions as well as the span of time for which you contribute. Nonetheless the performance of your pension plan may also be impacted by how the underlying investments of your pension plan have performed.

Starting your pension plan early is a wise decision

For these reasons you should consider seeking professional advice when investing in a private pension. Ideally you would opt for a pension plan that gives you an amount of flexibility to allow you to adjust in the event of changes both in your personal and financial circumstances. It should allow you to save on a regular basis as well as enable you to make single ‘one off’ contributions whenever you like.

Furthermore your pension plan should permit you to increase your contributions as well as take a break from your contributions should the situation necessitate.

If you have opted for a unit-linked pension plan, make sure to monitor your investments’ performance regularly to ensure that they are in sync with your retirement objectives.

Clearly, planning for your retirement is not something you can leave up to the last minute. If anything, it’s a lifelong process, so make sure that you evaluate the progress of your retirement pension and take the necessary decisions and actions so your targets are attained.

Investment returns in a pension fund can go down as well as up and past performance is not necessarily a guide to future performance. Changes in the rate of exchange currencies may also affect the value of your investments. Any views, assumptions or opinions expressed in this article are those of the author.

Caroline Busuttil, Senior financial advisor, BOV Wealth Management

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