Retirement Funds & Schemes

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The Retirement Pensions Act Act 2011, Chapter 514 of the Laws of Malta (the Act) replaced the previous Special Funds (Regulation) Act 2002. The Act inter alia sets out the regulatory framework for the establishment of Pillar Two retirement funds and schemes. The draft Pension Rules published in April 2013 are currently undergoing a consultation process with the stakeholders.

The Act imposes the licensing requirement on any retirement scheme or fund carrying on any activity for the provision of retirement benefits in or from within Malta, in which case the relevant scheme or fund must also be situated in Malta. A scheme including an Occupational Retirement Scheme is defined as a scheme or arrangement which governs the rights and responsibilities of the Retirement Scheme Administrator and Contributor thereto, and in terms of which payments are made to Beneficiaries for the principal purpose of providing retirement benefits. Retirement Schemes may be established as either Defined Benefit Schemes or Defined Contribution Retirement Schemes. A Defined Benefit Scheme provides for the payment of fixed or determinable retirement benefits. On the other hand, in the case of a Defined Contribution Retirement Scheme, the retirement benefits are established on the basis of the contributions paid into such scheme and the accumulation of profits, gains and other income, after the deduction of expenses and losses in relation thereto.

The retirement scheme is administered by the Scheme Administrator with the contributions towards such a scheme being invested exclusively in one or more Retirement Funds which satisfy the requirements of the Act and this in terms of the written contract evidencing the Registered Scheme.

The terms “Retirement Fund” refer to a company established for the principal purpose of holding and investing the contributions made to one or more Schemes or to one or more overseas occupational retirement schemes. Retirement Funds and Schemes situated in Malta shall be registered with the Malta Financial Services Authority. The terms and conditions of a scheme must be clearly set out in the Scheme Document. In fact, the Act provides for a series of requirements that must be included in the Scheme Document for the Scheme to qualify for registration.

The Schedule to the Act enlists a number of services which are licensable whether provided in or from Malta, namely administration services to retirement schemes, custodian or trustee services provided to retirement schemes or funds and investment management services provided to retirement schemes or funds. The Act also introduces a recognition requirement applicable to persons providing back-office administrative activities as defined in the Pension Rules in or from Malta. The specific duties of service providers including the retirement scheme administrator are expected to emanate from the forthcoming regulations and rules.

A Retirement Fund in order to be eligible for registration, must be registered as an investment company with fixed share capital or an investment company with variable share capital, with its objectives being limited to those prescribed in the Act.The Act also provides for the possibility of a retirement scheme to be established in the form of an investment company with variable share capital.

The board of directors of a Retirement Fund shall be responsible either directly or through an Asset Manager registered under the Act to invest all the fund’s assets in accordance with its Memorandum of Association. The Act also prescribes that every Sheme shall have a Retirement Scheme Administrator appointed by the Contributors of the Scheme, who is to perform all duties in connection with the ordinary operations of the Scheme.

Qualifying Recognised Overseas Pension Schemes (QROPS Malta) and Qualifying Non-UK Pension Schemes (QNUPS Malta)

The strength of Malta’s reputation as a financial services jurisdiction has been further reinforced by the fact that retirement schemes established in Malta and regulated by the Malta Financial Services Authority (the “MFSA”) may be recognised by Her Majesty’s Revenue and Customs in the U.K. (the “HMRC”) either as Qualifying Recognised Overseas Pension Schemes (“QROPS Malta”) or as Qualifying Non-UK Pension Schemes (“QNUPS Malta”).

Apart from the robust regulatory framework and competitive operational costs, another advantage of establishing a QROPS in Malta is its stable and favourable tax regime. The income (other than income from immovable property situated in Malta) of a retirement scheme or fund that is licensed, registered or otherwise authorised under the Act, including capital gains, is exempt from tax under the Malta Income Tax Act. Such favourable tax treatment is enhanced by Malta’s full imputation tax system and provision for tax refunds, allowing for further efficient tax planning.

QNUPS do not have reporting requirements to HMRC unlike QROPS, although they do not enjoy the same benefits. For example, a UK pension cannot be transferred into a QNUPS, nor does it attract tax relief.

Instead, QNUPS have other benefits which renders them an attractive retirement wealth management tool for expatriates planning for retirement. They are flexible so that one can put a wide range of assets into a QNUPS such as residential homes and other property. It is also possible to take a loan from the QNUPS.

Such a pension plan is also exempt from inheritance tax (IHT) on the member’s death.

EMD is in a position to assist clients in the pensions area both in the setting up process and on an ongoing basis thereafter.