By Gerry Kelly – CEO Sovereign Group
When discussing employment terms with a prospective new employer, individuals must consider traditional concerns relating to pay, terms and benefits. Decent pension provision as part of a structured retirement planning strategy is increasingly regarded as fundamental to the overall remuneration package.
This is certainly the case in Gibraltar, where pension administration is a highly regulated business. The Rock hosts a number of world class pension providers who work closely with regulators to ensure that pension plans are properly established, protected and well managed.
Given its size and position, Gibraltar relies on cross-border workers more than most jurisdictions and a significant proportion of its workforce is made up of Spanish residents. These individuals are certainly able to establish Gibraltar pensions but great care must be taken at the outset to avoid falling foul of Spanish tax rules.
There are two distinct types of pension scheme that an employee can join in Gibraltar: an employer-sponsored plan – generally known as an ‘occupational pension scheme’ – where a company provides a pension for their employees; or, alternatively, a personal pension scheme. The latter would be attractive to an employee who either does not have access to an occupational scheme or, for whatever reason, has chosen to ‘opt out’ of one that is offered.
Let us consider occupational pension schemes first. There are almost 30 regulated occupational pension schemes in Gibraltar. These include, as one might expect, schemes for some of Gibraltar’s largest companies and employers. Helpfully the local regulator, the Gibraltar Financial Services Commission, publishes this information on its website, allowing potential employees to make the right choice. The list can be accessed at www.gfsc.gi/regulated-entities/occupational-pension-schemes-18.
All the schemes listed are classed as ‘IORPS’, which stands for Institutions for Occupational Retirement Provision. All such schemes are governed by the European IORP II Directive that came into effect in January 2019. The aim of the directive is to provide supervision and thus protection to EU citizens for this type of pension scheme.
This is important because Spanish tax residents who work in Gibraltar will be eligible for Spanish tax relief in respect of contributions paid to an IORPS – that is to say, relief will be allowed even for occupational pension schemes that are established and wholly managed in Gibraltar.
Some employers include both Gibraltar and Spanish tax residents in their occupational schemes, whilst others separate them. In addition to a single occupational scheme, some pension providers also offer multi-employer schemes that also qualify as IORPS. These can suit smaller employers who do not wish to incur the expense of establishing their own scheme.
In practice, contributions made by the employee to their employer’s occupational scheme will be deducted from their personal income taxable base up to a maximum limit – currently set at €8,000 per year in Spain – with a further tax exemption for spouses under certain conditions.
The contrast with the Spanish tax treatment of a Gibraltar personal pension scheme is stark. Gibraltar personal pensions work perfectly well in Gibraltar but should not be recommended for Spanish-resident employees. This is particularly true where an employer is making contributions to the personal scheme on an employee’s behalf.
Gibraltar employees who are tax resident in Spain are in effect subject to a ‘double whammy’. They are not able to claim the tax relief that is available to occupational scheme members, while the employer’s contribution to an employee’s Gibraltar personal pension is treated as a ‘benefit in kind’ in Spain – and taxed accordingly.
It is also important to note that Gibraltar government schemes are not classified as IORPS and therefore scheme members who are resident in Spain may well be subject to the same issues as if the scheme were a personal pension scheme.
Pensions are of primary importance to most people, particularly given the mobile nature of Gibraltar’s workforce and the diminishing capacity of governments worldwide to provide for an ever growing retired population.
Accurate, relevant advice should be sought at the earliest opportunity when considering the establishment of a pension plan of any kind. This is also true where a plan already exists but where advice was not sought at the time, or is now out of date or just plain wrong. Please contact Sovereign if any of these matters are of concern to you.
If you would like to discuss discuss these challenges further or find out more about how the Sovereign Group can assist, then please contact Darren Whitley:
Darren Whitley | Managing Director, Sovereign Pension Services (Gibraltar) Limited
Email: dwhitley@sovereigngroup.com
Telephone: +350 200 41145 Ext: 2325
