This planning for the future is to be given serious thought since today’s retirees, at sixty-five (65) years old, due to the present life expectancy, still feel energetic enough to be considered as if they are fifty (50) years of age , and thus they expect to maintain their pre-retirement quality of life.
Malta today is experiencing an ‘employee’s’ market. This means, that in a state of play where unemployment is nearly zero, it is the employee who dictates the terms of employment. Moreover, Gen Z – the newest generation born between 1995 and 2015 – and the millennial generation have a different employment ethos than the Baby Boomers who invariably had a job for life, or even Gen X – born between 1965 – 1979 – who normally only changed employment for significant improvements in their conditions of employment or job status.
Gen Z and the millennials, however, shift from one job to the other for fun, excitement, and incremental improvements in their conditions of employments. The result is that employers are finding it difficult to retain the best and brightest staff. Too often, however, employers underestimate the cost of losing a talented staff member. Employers, many a time, look at the direct cost of what it takes to replace a talented person – the cost of advertising, the administration cost related to the recruitment process, and perhaps the down time on the assignments carried out by the staff member who is to be replaced until his/her replacement is employed.
The true cost of replacing a talented staff member, however, is much higher than that. This is because losing such a staff member brings with it significant hidden costs. These include.
- The loss of knowledge and experience;
- The loss of physical and documented information;
- The potential loss of other key personnel, who are headhunted by the departing employees and/or due to lowering of morale due to the departure of the said employee;
- The risk (which is high) of not finding a suitable replacement and of choosing an unsuitable one;
- The loss in production as the new employees ramp up
- The costs in bringing over and integrating new employees who may leave after a while.
The Malta Employer’s Association in the summer of 2019 issued the results of a survey of the labour market. As can be seen from the Figure below, of interest is the fact that Maltese employers do not offer a workplace pension as one of the compensation tools to attract and retain talented staff.
As part of its strategy to increase the number of persons who prepare for their retirement by saving in incentivised tailored pension products, the Government introduced the Voluntary Occupational Retirement Pension Scheme – or VORPS – framework in 2017.
For an employer to introduce there is no financial obligation – in terms of a mandatory pension contribution that an employer must pay. The employer may enter into agreement with a VORPS provider in which staff employed may contribute to and on employment and periodically, through human resources, inform staff on the importance of saving for their retirement.
An employer, however, is fiscally incentive to introduce a VORPS scheme – where-in the employer will benefit from
An employer’s contribution to an employee’s voluntary pension plan represents an interesting tax effective manner for compensating employees. This is achieved because:
- The payment of the contribution on a VORPS is not considered to be a fringe benefit, and is a taxable event on the Profit and Loss.
- A tax credit of 25% contribution paid on the maximum ceiling of €2,000 is €500 – annually.
You own AB Consulting Ltd. The following are the details of your company:
- Medium Sized consulting organisaton
- 22 FTEsKnowledge based
- Total employee cost including training: €36,364
The Table below analyses the financial impact of VORPS if you were to introduce it in your company. The effective cost per employee if you had to pay the maximum contribution of €2,000 is €800. This cost must be measured against the cost it would take to replace one talented employee – which is estimated at €15,114.
This is based on the following calculations.