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Gibraltar Approved Schemes FAQ
What is a Gibraltar Approved Pension Scheme?
It is a scheme which has been approved by the Gibraltar Income Tax Office.
Why does it need to be approved?
To take advantage of the deductibility for tax purposes of employers' and employees' contributions. It also ensures that employers' contributions are not treated as additional remuneration for the employee and taxed as such.
What legislation in Gibraltar governs pension schemes?
The Income Tax Act, subsequent amendments and subsidiary legislation. In addition, the Income Tax Office has published guidance notes on which approval of schemes is based.
All pension schemes require an authorised pensioner trustee - a person or company who has been authorised by the Income Tax Office to act as such. They must be widely involved with the Income Tax Office in connection with approved schemes.
Professional trustees must be licensed by the Gibraltar Financial Services Commission (FSC)
Does this mean that no one else can be a trustee of a pension scheme?
No. There can be other trustees but at least one of them should be a FSC approved pensioneer trustee.
How are the pension scheme assets held?
The pension scheme is set up as an irrevocable trust, so assets are held independently of both the employing company and the scheme member.
What is an umbrella scheme?
In essence, there is one overall trust which has one main set of pension scheme rules and regulations outlined in a head deed. Individual companies can provide pension benefits for their employees by contributing to this scheme. The employer can amend the main scheme rules, providing the changes do not contravene the tax approval requirements, by issuing a set of supplementary rules.
How are the assets held in an umbrella scheme?
The funds contributed by each separate employer for each employee are invested and recorded separately.
Do I have to have similar investments to the other members?
Not necessarily; it depends on the size of your fund and your investment requirements.
Will I be a member of an umbrella scheme?
You can choose, but it is usually based on the size of the funds and the costs involved.
What is 'Money Purchase'?
It is the name given to this type of occupational pension scheme, also known as Defined Contribution.
You and your employer contribute to the scheme, which is then invested. The value of the pension is based on the contributions paid and how well the investments have performed. Your pension value is not guaranteed as it partly depends upon investment performance
Eligibility
Can any employee join the scheme?
The simple answer is yes, but generally it is up to the employer when setting up the scheme to decide what requirements they want to include. This often includes a minimum period of employment before a person becomes eligible to become a member.
Is it solely for Gibraltar residents?
No, anyone employed by a Gibraltar company may be a member wherever they are resident.
At what age can employees join?
Employees must be over 18 and under 70.
How do employees obtain information about the performance of their pension fund?
Details of investments are available online and employees receive half yearly reports, showing the changes in their fund and an annual statement of the investments held.
Where will the contributions be invested?
In funds chosen by the employer after taking advice from a financial advisor on their suitability. The advisor will review the performance of the funds and report to the trustees.
Is there a minimum period of time that employees need to be in the scheme?
No, but in the first two years of membership (which can be extended up to five years if the employer desires), the employee's contribution will be refunded on termination of the employment and subject to tax, currently at a rate of 10 per cent. Subsequent contributions will be retained in the scheme and a deferred pension paid on retirement.
Contributions
Is there a minimum contribution required?
In theory no, but in practice small contributions are uneconomic to administer. The level of the minimum contribution will be agreed with the employer when the scheme is set up.
Is there a maximum contribution payable?
The maximum payable by the member is limited to one sixth of a member's assessable income. Current practice is that the maximum payable by the employer and employee combined is restricted to 25 per cent of the member's remuneration.
Are employers's contributions fully tax deductible?
An ordinary annual contribution by the employer is allowed as an expense in the year in which it is paid. The allowance for special contributions may have to be spread over a period of years, up to a maximum of five.
What is an ordinary annual contribution?
It is regarded as a fixed amount, or a varying one calculated as a percentage of earnings or on some other stated basis, payable each year of service until retirement.
What is a special contribution?
A payment over and above the ordinary annual contribution made, for example, to provide benefits for back service or to make up an actuarial deficiency in the fund.
Can employees transfer in existing pension rights?
Yes, subject to the approval of the Income Tax Office and dependent on the ability of the transferor scheme to make such transfers.
Pension Fund
Are there restrictions on the investments that the pension fund can make?
Yes. The restrictions are as follows:
- no loans can be made to members or directors of the employing company
- residential property cannot be purchased, except in specific circumstances
- no investment can be made in the share capital of the employing company or associated companies
- a maximum of 50 per cent of the fund can be invested in the following:
- loan capital/debentures of the employing company or associated companies
- property owned by the pension fund and used for business purposes.
Are the investments of the pension fund taxable?
In Gibraltar there is no tax on the investments held within the pension scheme.
Retirement benefits
What options are available on retirement?
There are three choices:
- lump sum
- payment of a regular pension by the trustees
- purchase of an annuity.
How much can the employee take as a lump sum?
Up to 25 per cent of the value of their fund at retirement but currently, due to the lack of annuity providers, it is possible to take the other 75% as a lump sum too.
Is this subject to tax?
Under the current rules there will be no tax liability.
What does purchase of an annuity mean?
Trustees can approach an annuity provider, usually an insurance company, and purchase an annuity which will provide a pension income for a pre-agreed period. The pension can be of a fixed amount, can increase with inflation, can be paid for a fixed period and can be paid to the widow/widower on the death of the member.
What is the difference between a pension paid through an annuity and a pension paid by the trustees?
A pension purchased by the annuity is fixed in its terms, which are determined when it is purchased. A regular pension will be paid by the trustees from the funds held by them. The amount is determined by actuarial valuation.
The main difference between the two is that with an annuity the whole of the member's available funds will be used to purchase the annuity. If the member dies before the annuity runs out, the insurance company takes the balance remaining whereas with the pension paid by the trustees the remaining balance can be used by the trustees to provide benefits for the dependents of the member. The latter pension is a more flexible option.
Is this pension taxable?
No.Both annuity pensions and trustee paid pensions are tax free, providing the member is over 60.
What happens to my share of the fund when I die?
You decide who should benefit on your death.
