While there is no public intention to alter the favourable ‘flexi-access’ regime for UK relevant transfer funds being transferred to a Qualifying Recognised Overseas Pension Scheme (Qrops) in Malta, it would appear that there is a change on the horizon for all other Malta Pension Plans, writes Bethell Codrington, director of TMF International Pensions.
In draft legislation issued by the Malta Financial Services Authority (MFSA), ‘capped’ drawdown products will be introduced as the way in which a policy holder and/or beneficiary may take retirement benefits.
This has been issued in relation to life insurance companies authorised under the Insurance Business Act to carry on long-term business of insurance and retirement provision business in Malta, however indications suggest that the MFSA are considering implementing this for personal retirement schemes and Qrops providers.
B.4.6.3 of the Pension Rules for Personal Retirement Schemes issued in terms of the Retirement Act 2011 specify the following options for members wishing to draw an income from the remaining assets not paid in the form of a Pension Commencement Lump Sum (PCLS):
- be used towards programmed withdrawals. Programmed withdrawals shall be based on publicly available annuity/drawdown rates. The retirement scheme administrator shall ensure that the said annuity/drawdown rates are based on sound and prudent actuarial principles; or
- be used to purchase a life annuity; or
- be a combination of programmed withdrawals and life annuity.
In the absence of any specific publicly available drawdown rates and poor annuity rates, many trustees have relied upon UK GAD (Government Actuary Department) tables, including the ability to take 150% of GAD.
It would appear that the Maltese Regulator will require trustees in future to use the Malta 10-year Government Bond Yield rather than UK 15-year gilts and the Malta National Statistics Office mortality rates for 2001-2020 rather than those offered by HMRC.
The effect of these changes when finally introduced may see members income vary from what they have come to expect.
On 3 May 2023, the UK 15-year gilt stood at 3.97%, while the Malta 10-year bond yield stood at 3.48%. If you round down the rate to nearest 0.25% as is required, there is currently a 0.5% difference between the two rates. In addition, mortality tables vary but only negligibly.
The result of the change is that if you are currently aged 60 and using UK GAD, you would get £58/1000.
Using the new Malta rates, you would get £55/1000. On a pension pot of £500,000 ($625,000, €575,000), that would equate to a £1,500 per annum difference in the amount of income a pensioner would be able to draw.
However, this is only a small snapshot in time. Future drawdown rates will purely be determined by the Maltese economy and fluctuations in its bond yields.
This should be looked upon as another positive step forward for Malta in further developing its domestic pensions legislation. A transition period would be ideal, but this proposal will bring more certainty to the industry going forward.
This article was written for International Adviser by Bethell Codrington, director of TMF International Pensions.
