The global nature of business has meant that many people move from country to country to either further their careers or to experience other cultures. This often results in individuals becoming expats (expatriates), i.e. residing in a country that is not their native country. Along this journey, an individual can build up various pension pots. We are often faced with questions regarding overseas pension transfers and in particular, the rules pertaining to how Irish pensions transfers are treated.
What is IROPS?
Under IORPS (Institutions for Occupational Retirement Provision Scheme) legislation, occupational pension funds in the European Union benefit from the principles of free movement of capital and free provisions of services. This legislation sets common standards ensuring the soundness of occupational pensions and better protects pension scheme members and beneficiaries through rigorous prudential standards.
IORPs facilitates cross-border activities by introducing new transfer rules and by clarifying procedures, including the roles of authorities in home and host Member State and how they shall communicate with each other. It encourages IORPs to invest long term in growth, environment and employment-enhancing economic activities by modernising investment rules.
Can I Transfer My Pension Abroad?
IROPS created a legislative basis for transfers from PRSAs and from Occupational Pension Schemes to similar arrangements available elsewhere in the EU. Note this does not apply to Personal Pensions, Buy out Bonds s or Approved Retirement Funds.
The Revenue’s view is that transfers will be permitted to an overseas arrangement for bona fide reasons and is not primarily for the purpose of circumnavigating pension tax legislation and revenue rules.
Who is a Maltese Pension Transfer Suitable for?
The Maltese option is only suitable for certain individuals with the circumstances outlined below:
Non-residents or future non-residents.
Individuals who have overseas benefits and they are looking to consolidate.
International executives who can fund benefits in different jurisdictions and wish to base their benefits in the most flexible jurisdiction.
Individuals concerned with the €2 million pension fund threshold.
Individuals with a pension pot of over €500K as the associated costs for a pension pot below this amount would be too punitive.
What are the Benefits of Malta Pensions to Irish Residents?
Benefits can be taken from age 50
There is no need to retire from your employment or to sell down shares to start accessing your pension, however, we would recommend leaving the funds as long as possible to allow to growth to help afford your desired retirement lifestyle.
Lump sum at 30% and is uncapped
This can make a significant difference when there is a large pension pot in Ireland as the tax -free lump sum that can be taken at retirement is 25% and is capped at 200K with the next 300K being taxed at 20%.
A client with a pension pot of €2 million would receive a tax-free lump sum of €600K in Malta as opposed to a €200K in Ireland.
No Fund Cap
As previously mentioned, there is a €2 million pension fund cap in Ireland with anything in excess of this being taxed at 40%. There is no such cap in Malta.
This can be significant for anybody who has a large pension pot, example €1.5 million, as growth on the accumulated funds can cause a breach of the €2 Million Personal Fund Threshold.
If a client moved this pension to Malta the €1.5 million would be crystallised. The client can recommence funding an Irish pension up to the PFT minus the €1.5 million. The Maltese pension can now grow at an appropriate risk return level without fear of breaching the €2 million threshold.
In Ireland the client must draw down 4% - 6%, of the ARF annually (depending on the age of the client) even if the client doesn’t need these funds. This creates an unnecessary payment of tax. If the pension is transferred to Malta, the client can draw down funds as required.
Lump Sum Benefits on First Death
In Malta, if the client passes away the spouse of the of the pension owner will receive the value of the pension at the time tax free.
In Ireland, the ARF will remain in tact with a change in name so the spouse will still have to be taxed on future drawdowns.
Benefits Passes Directly to Beneficiaries
In Malta, the benefit will be passed directly to the named beneficiaries without the need for probate.
In Ireland, the ARF will be passed through the estate and which could take a significantly longer time.
Maltese Pensions can be Multi-Currency
In Malta, clients can invest in the currency of their choice. This can be crucial for those who want currency diversification or for those that have built pots in various currencies from working abroad and do not want to face exchange rate risk.
How is my Malta Pension Taxed?
It is worth noting that Tax will depend on where you are living when you decide to draw pension benefits. You will need to look into the Double Taxation Agreements between Malta and the country you reside in to see who gets the taxation rights. Malta currently has 71 Double Taxation Agreements with countries around the world, but you need to study each individual Double Taxation Agreement to understand where the tax liability is. The tax may be imposed in Malta, shared with Malta or be taxed in your country of residence at retirement. You need to show proof of tax residence in your country of retirement, if you want your QROPS in Malta to be paid out gross. A DTA also needs to exist. Otherwise, you will be taxed in Malta at Malta personal income tax rates of up to 35%.
Are Maltese Pensions Secure?
Malta has carried out a programme of reforming its financial sector legislation in line with international best practice. The country is actively involved with the Organisation for Economic Co-Operation and Development (OECD) and the EU and is not considered a tax haven. Malta has benefited greatly from this programme and the financial services industry is the fastest growing sector of their economy. This has made Malta a popular destination for pension transfers.
Want to Find Out More?
Each case is unique and brings with it its own financial planning challenges. Please contact OpesFidelio Ireland Ltd to see if transferring your pension to Malta would be advantageous for your circumstances.