Different terms are used to refer to the retirement pension provided to you under the Social Security Act (SSA). You come across terms such as the NI Contribution Pension, State Pension, Social Security Pension, Two-Thirds Pension, Contributory Benefits Pension and Retirement Pension, amongst others.
The SSA defines a pension in respect of retirement under the social security contributions scheme as a retirement pension. To qualify for such a pension you need to meet certain qualifying conditions established under the SSA.
The retirement pension is different from the age pension. To differentiate between the retirement pension under the social security contribution scheme and the non- contributory age pension, this article refers to the retirement pension as the Social Security Pension.
Note that the social security pension is also different from a service pension, second pension, a mandatory second pension (or mandatory second pillar pension) and a third pension (or third pillar pension). These are defined below:
This is a means-tested non contributory benefits pensions. To qualify for a retirement pension under the social security scheme you need to pay a minimum level of social security contributions. If you do not pay this minimum level of social security contributions, you will not qualify for a retirement pension.
Malta’s social security system, however, is designed to provide its citizens with a safety net. Thus a person who has failed to pay the minimum level of social security, contributions may be entitled to an age pension.
Receipt of an age pension is not automatic for a person who failed to qualify for a social security pension. For a person to qualify for an age pension, he/she has to pass a capital and income means test.
The capital and income means test is a mechanism that ensures that only persons who do not meet a defined level of capital and income resources qualify for the receipt of an age pension.
Prior to the introduction of the social security contributions scheme in 1979, employees were in receipt of occupational pensions paid by their employer. For example, employees who joined the government prior to 1979 were in receipt of what is known as ‘The Treasury Pension’.
The social security reforms of 1979 no longer allowed for the payment of occupational pensions by employers to their employees. Most private employers liquidated such occupational schemes. Others, such as the treasury pension continues to be paid to persons employed in 1979 or earlier subject to certain conditions.
This is a pension that governments in a number of countries introduced to encourage persons to save to top-up their income in retirement over and above the pension income they will receive from the State.
In a second pension scheme the contribution that you would pay would go directly to a pension account that belongs to you.
A second pension scheme can be introduced in a mandatory or voluntary manner.
Malta does not have such a pension scheme in place today.
The government to encourage people to save for retirement incentivises you, normally through tax credits, to invest in a personal private pension scheme. Given that you have benefited from an incentive to invest in a personal private pension scheme you are subject to certain conditions on how you can draw down your savings from such a scheme.
Normally such a personal private pension scheme is long term and ‘locks’ your savings up to a certain age, for example not before the age of 50 years.
Thereafter you are allowed to opt to withdraw a small proportion of your saving as a lump sum with the remaining large part of the savings to be received as a monthly annuity or a programmed annual / monthly drop down income or any other form of income withdrawal as established by the regulatory framework.
In 2015 Malta introduced a legislative framework for the provision of a third pension. In fact, since November 2015 financial third pension schemes are being provided by local financial service providers.