Automatic enrolment reform: Tax credits for employers, but not for all – The Malta Independent
Malta is preparing to roll out automatic enrolment, a long-anticipated reform aimed at building a genuine second pillar of retirement saving. Employees will see a portion of their salary redirected into a pension plan—starting from around €50 per month—and, in the public sector, government will match contributions up to €100. In the private sector, employers may contribute but won’t be obliged to. On the surface, the framework is clean and overdue.
How the new system works
The consultation document proposes that both employees and employers benefit from the same tax credits already available under current occupational pension arrangements. This continuity is intended to keep administration simple and incentives clear. Yet the effectiveness of these incentives varies greatly depending on an employer’s tax position.
Tax credits: efficient but uneven
Tax credits are powerful only when there is tax to offset. For profitable companies, the credit directly reduces their tax bill—an immediate, tangible benefit. For small businesses with slim margins, or startups making a loss, the same credit has little to no value. The consultation explicitly maintains the existing model of a non-refundable tax credit, aligning automatic enrolment with the voluntary system. That design works for firms in the black; it does not help those without taxable profits.
Why this matters for SMEs
SMEs account for more than 95% of Malta’s businesses. Many are stable but operate on tight margins. They may wish to co-fund pensions to retain and attract talent, but non-refundable credits provide no relief if their tax liability is zero. In practice, the incentive structure disproportionately benefits larger or consistently profitable companies, while leaving smaller, younger, or more volatile firms with the cost but without the offset.
Existing limits that shape the incentives
- Under current voluntary pension rules, employers can claim a tax credit equal to 25% of their contributions for each employee, capped at €750 per worker.
- Employer contributions may also be treated as a deductible business expense, up to €2,000 per employee.
These parameters may look generous on paper, but they remain out of reach for firms that do not generate taxable profits. The result is a two-speed incentive: meaningful for some, meaningless for others.
The policy gap
The consultation is clear about contribution levels, credits, and deductions, but it does not propose remedies that would make incentives work for loss-making or early-stage businesses. There is no mention of refundable credits, nor of allowing credits to be carried forward to future profitable years. Without such features, the reform’s support mechanism leans toward firms already in a strong financial position, while the very businesses that are pivotal for innovation and job creation receive little more than a promise.
Risks to participation and credibility
Automatic enrolment can transform Malta’s retirement landscape by encouraging saving, strengthening retirement security, and complementing the state pension. However, its success hinges on broad participation. If the benefits are skewed toward companies that already pay tax, smaller businesses may hold back, and the policy could struggle to gain traction. Credibility depends on the fine print as much as on the headline.
What would make the reform work for everyone
For automatic enrolment to deliver on its goals, incentives must be meaningful across the full spectrum of employers—profitable and not-yet-profitable alike. A framework that only reduces tax for those with tax to pay is not a universal incentive. Ensuring that every employer receives tangible support in return for co-funding employee pensions would widen participation, strengthen fairness, and improve the reform’s chances of success. Otherwise, Malta risks introducing a well-intentioned measure that looks sound in theory but underdelivers in practice.
