Building wealth for tomorrow

As Malta’s population continues to age, and state pensions become less likely to provide solid support, private retirement plans are stepping in to fill the gaps. Alex Bezzina, Head of Insurance Services and Pensions at Bank of Valletta discusses the diversity and flexibility of the pension plans on offer, which provide some peace of mind for the future.

For many, planning for retirement is overwhelming, or simply, not a priority. However, with ageing populations on the rise across the globe, and reserves dropping due to the decrease in contributions – as birth rates decrease – the increasing number of beneficiaries is likely to put pressure on state coffers, making it difficult for governments to provide a decent and dignified living to their retirees. Yet, as Alex Bezzina, affirms, private pension plans are poised to assist.

“Our goal is to cater for all customers at every point of their life cycle,” says Mr Bezzina, who boasts over two decades of investment advisory experience. “And, as a result, we’re driven to offer market-leading pension plan products – as intermediaries of MAPFRE MSV Life – which are founded on an extensive selection of possible underlying investments,” he continues. These, he asserts, are available to individuals between the ages of 18 and 59 seeking personal solutions, or employers keen to offer added benefits to their staff.

The bank’s offering has a long history, going back to 1994, when the institution, through its long-standing relationship with MAPFRE – then known as Middlesea Valletta Life – started to furnish savings plans which provided capital protection on death or maturity. “These products were designed as savings plans – whether with a specific goal in mind or simply for retirement planning – so the issues surrounding pensions and sustainability have long been a priority here at Bank of Valletta,” he explains.

In 2015, the Government of Malta introduced the Retirement Pensions Act, regulating the provision of private retirement plans on the island, with amendments passed in 2018. It was a gamechanger which boosted the attractiveness of the schemes, Mr Bezzina says.

“Our traditional savings plans had already evolved to include more options, allowing clients to select the underlying investments. MAPFRE MSV Life had also launched a retirement scheme by this time. However, when the new law was passed, it spurred individuals to think more seriously about their future.” This was due to the legislation’s ratification of improved terms, which became the catalyst for increased tax rebates offered exclusively to Malta’s tax residents. These rebates have now risen from 15 per cent to 25 per cent on the first €3,000 of their annual premium, allowing investors to receive up to €750 back on that premium.

“This last increase occurred a few years back and offers an added advantage: while a client is receiving the rebate, the policy account still registers the full €3,000. This could be interpreted to result in an automatic 33 per cent gain. Notably, this demonstrates Government’s commitment to making these plans more attractive. Fundamentally, our public pension framework is unsustainable in the long-term. However, individuals and businesses can now benefit from financial incentives on private retirement plans for themselves or their employees,” Mr Bezzina continues.

Indeed, Bank of Valletta is actively communicating with its corporate customers to underscore the benefits of these plans. “In this regard, Bank of Valletta offers MAPFRE MSV Life’s Second Pillar Voluntary Occupational Pension Scheme, the WorkSave Pension Plan, where contributions made on behalf of an employee are tax deductible up to €2,000 per employee, per year. On top of this, both the employer as well as the employee receive a 25 per cent tax rebate on an annual premium or contribution, which is capped at €3,000 each. Additionally, this offering aids in staff retention – if an individual has both a personal plan and one through their employer, they will receive the 25 per cent tax rebate on both schemes,” Mr Bezzina attests.

Elaborating further, Mr Bezzina explains that, through MAPFRE MSV Life, the bank offers two “unique” propositions. “Our clients can either opt for a ‘With Profits Pension Plan’, where investments are made in a conservative manner, with the capital value protected until death or maturity. This occurs in agreement with the customer and in line with current legislation; moreover, after withdrawing the 30 per cent tax-free lump sum, and retaining the remaining 70 per cent of the proceeds, the customer will have the option to purchase a Life Annuity, or to make use of Programmed Withdrawals. While the returns can be deemed to be of a more conservative nature, the plan is considered as low-risk. Our second option is the ‘Unit-Linked Pension Plan’, which offers the potential for higher returns over the longer term. In this case, the client is able to choose the level of risk desired through a wide range of funds, categorised into bonds, equity, portfolio, and target funds,” he explains.

This is what distinguishes Bank of Valletta’s offering through MAPFRE MSV Life from other similar schemes: their diversity and flexibility. “Ultimately, the opportunities are substantial, allowing our clients to choose where to allocate their investments based on their priorities and values. This positions us ahead of the market. For example, customers with ESG (Environmental, Social, and Governance) principles can invest in funds through the ‘Unit-Linked Pension Plan’ which prioritise such values. We offer funds classified under both Article 8 and the more demanding Article 9 of the Sustainable Finance Disclosure Regulation (SDFR), ensuring that we uphold the highest standards. This aligns with the bank’s strategy to provide a distinct variety of options tailored to everyone’s needs,” Mr Bezzina shares.

The returns accrued until retirement depend partly on the duration of the investment as well as on the amount of the premium paid, the Head of Insurance Services and Pensions says. This is particularly true for a Unit-Linked Pension Plan. “Typically, the premium is capped at €3,000 per person due to the tax rebate. Therefore, what varies is the number of years invested, with compounding growth likely to be exponentially substantial depending on the choices made,” he states.

Traditionally, the more volatile the investment, the better the expected long-term returns. For instance, if you invest in a fund through the ‘Unit-Linked Pension Plan’ and its value drops at the beginning of the plan, your monthly investment will buy more units. Over time, these units are likely to increase in value, although past performance is not a reliable indicator of current or future results. Therefore, if you’re planning on taking out a plan for the next 20 to 25 years, it would be ideal to focus on equity related investments for the first 10 years. After that, one should ideally start a derisking process by shifting investments to, for example, a target fund which becomes more conservative as the years progress,” he explains.

In other words, he adds, “regular long-term investments should ideally start with equity exposure, and it’s advisable to take risks at the beginning of such a policy since you’re still in the accumulation phase.” However, if circumstances change and the client decides to switch to a more cautious plan, this is also possible as flexibility is built into the offering. “In such cases, there are various solutions where the customer could opt for more or less volatility, depending on their specific expectations. In this case, one can switch holdings and/or re-direct future premia.”

Fundamentally, Mr Bezzina adds, these investments should form part of a comprehensive portfolio, structured to maximise the potential for return and provide peace of mind for the future. “The bank works closely with our clients through our investment centres and private banking facilities, meeting with a financial advisor to determine what best suits their needs. Building your investment framework doesn’t need to be a complex process,” he says. This support is available throughout the lifetime of any plan, with guidance tailored to the client’s objectives.

Looking ahead, any changes to the bank’s and MAPFRE MSV Life’s offerings will depend on “legislation that continues to evolve as the Government makes retirement plans more attractive in the long term,” Mr Bezzina notes. He concludes by affirming that the bank’s commitment to meeting its clients’ diverse needs will remain unwavering.

Further information on the MAPFRE MSV Life Personal Pension Plan may be obtained from the Key Features Document available from our website www.bov.com. If you stop paying your plan before the selected retirement date, you may not get back as much as you invested. If you invest in this product, you will not have access to your money before the retirement date. The value of your investment may go down as well as up and you may get back less than you originally invested. Tax treatment depends on the individual circumstances. Tax legislation and the amount of rebate may change in the future. Changes in the rate of exchange of currencies may also affect the value of investments.

Past performance is not a reliable indicator of current or future results. The Product is manufactured by MAPFRE MSV Life p.l.c. and distributed by Bank of Valletta p.l.c.

This advert is issued by Bank of Valletta p.l.c., 58, Triq San Żakkarija, Il-Belt Valletta VLT 1130.

Bank of Valletta p.l.c. is an enrolled Tied Insurance Intermediary under the Insurance Distribution Act, Cap. 487 of the Laws of Malta for MAPFRE MSV Life p.l.c. (MMSV). MMSV (C-15722) is authorised under the Insurance Business Act, Cap. 403 of the Laws of Malta. Both entities are regulated by the Malta Financial Services Authority.

This interview was first carried in the 2024/2025 edition of Business Now Magazine, the sister brand to BusinessNow.mt and produced by Content House Group