Do you want to get 3 years’ worth of stock returns paid to you for doing nothing, risk free?
This sounds like a scam a “Nigerian prince” would send you, but you can actually do this in Malta on up to 3k worth of your investments per year, through a government tax benefit in a retirement plan. The catch is that, since this is part of a retirement plan, the investments should be withdrawn when you retire. Nonetheless, the incentive is high and should be the first opportunity to be exploited by all Malta based investors.
How do these Pension Plans Work?
It works very similarly to a mutual fund. A mutual fund is when a professional investment company gathers money from a lot of people who want to invest, and use that pot of money to go out and make good investments. Then, the investors share the pool of profits whenever they want to withdraw money.
A pension plan differs in that, once you deposit money, that money can be invested in a lot of different mutual funds that are within the pension plan, and your money is normally withdrawn at retirement.
The restriction that you need to withdraw only at retirement is a negative point, but it is outweighed by the fact that the government gives you a tax rebate on 25% of the money you invest, up to 3k per year. This means that, effectively, if you invest €3,000 this year, you’re starting with €3,750, as every year, you can claim this tax rebate of up to €750.
Since the typical rate of return in the stock market is about 8% on average, you’re getting 3 years worth of returns for free, with no risk. Over and above this, a certain portion of your pension is tax-free when you withdraw it.
Why is the government doing this?
What if I don’t know what to invest in?
Should I do a Pension Plan?
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Any views or opinions presented in this article are personal and shouldn’t be taken/used as professional advice as we are not qualified financial advisors.
Any statistics mentioned have all been linked to their respective documents together with their ownership.
Lastly, we would like to note that this article has no tie to our professional jobs and was conducted in our free time.