Background and objective

Malta's pension system operates on a pay-as-you-go state pension model, which is facing accelerating demographic transformation. The old-age dependency ratio is projected to increase dramatically from 27.1 per cent in 2022 (NSO, 2024)^[1] to 65.4 per cent in 2070 (MFE, 2023^[2]), an increase of 38.3 percentage points. 

The pension adequacy gap is equally concerning for the Government. The public scheme benefit ratio is projected to decrease from 39.0 per cent in 2022 to 32.0 per cent by 2070 (MFE, 2023^[3]), meaning many retirees will struggle to maintain their pre-retirement standard of living. This replacement rate falls short of OECD averages.^[4]

To address these challenges, the Government has progressively introduced tax incentives to encourage the uptake of voluntary private pension savings. Since 2015, Malta has operated a Voluntary Second and Third Pillar Pension Schemes. At the end of 2024, an estimated 4,667 members (ca 2 per cent of 18- to 60-year-olds) participated in Voluntary Occupational Pension Schemes. These participation rates remain critically low, highlighting the urgent need for structural reform to ensure long-term pension adequacy.

By the end of 2024, six license holders were offering occupational pension plans categorised as qualifying schemes under the Voluntary Occupational Pension Scheme Rules (S.L. 123.175).

In the wake of the challenges in this area, the 2025 Government Budget Speech reaffirmed the commitment to strengthening retirement savings:

"This Government not only addresses current household income, but it also plans for the future. Our goal is to cultivate a strong savings culture to ensure that future pensioners have adequate income in retirement."

The Budget Speech further emphasised the need to promote occupational pension plans, ensuring that every employee entering the workforce or changing jobs has the opportunity to save in a retirement plan:

"While employers will not be required to make contributions, they must provide employees the opportunity to join a plan. It is the employee’s choice to decline."

In addition to this framework, the Government has committed to match individual contributions for public sector employees, up to a maximum of €100 per month, demonstrating its commitment as an employer to leading by example in retirement savings initiatives.