Financially, expatriates could be said to be in a more privileged position than most – if a company chooses to send an employee overseas, it will usually give higher wages, expenses, and other perks. Expatriates can also find themselves with greater freedom when it comes to making investment decisions, as they are not usually restricted by the same regulations that domestic investors experience.
If you have a domestic pension plan in place prior to working offshore, you may find out after you move abroad that it is not as mobile as you are. Also switching from plan to plan as you change from country to country doesn’t always make a great deal of sense. It can mean that the income you end up with in later life is fragmented and may be whittled away by foreign exchange costs or a cash-strapped government.
Sometimes, an international company will offer a pension plan to expat employees as part of their benefits package, but unfortunately this is nowhere near as common as it used to be. We are now in fairly lean times and many companies feel that it is not cost effective to offer decent benefits packages to more junior expatriates. They are more likely to concentrate on immediate benefits such as increased wages, so unless your employer is considerate enough to provide you with a benefits package tailored to suit your needs, the onus is on you as an individual to provide for your own retirement.
As we have said, moving a pension across a national border can at best add a further layer of complication, and at worst be downright impossible. So what are you to do? The most sensible solution would seem to be to find a safe place to anchor your retirement savings and / or investments so that you can move from country to country if necessary, without this having any negative impact on your assets. However if you decide to do this, you need to decide exactly where that safe place should be.
“What has the Offshore Market got to help me?”
Offshore financial centres present a viable solution, especially if you are undecided as to your eventual retirement destination. Basing your pension investment offshore should mean that future movements of capital or income are not impeded. However you should remember that any retirement income you take could be liable for taxation depending on where you are living at that time.
Unfortunately American expatriates and other expatriates that have been re-located to the States are more restricted in what they can do for retirement planning which is based offshore due to the US taxation regime. However the offshore market can be of immense help to them.
The Retirement Plans that are available offshore are really just savings plans linked to investments which are “managed” by professional fund managers. They generally do not have the same restrictions that apply to UK and other Government Regulated Pension Plans.
Basically, with an offshore plan, it’s your money and you can take it when you want, retire when you want and contribute what you want. (NB you usually have to run the plan for an initial period before you can start to access some of your savings)
You simply contribute regular amounts or a lump sum or both into your pension plan and then when you retire, you can take it all in cash or have a monthly pension or any combination of these two options. You can usually add extra lump sums into the fund say when you win some money or get a bonus or you could increase or decrease your regular contributions if your circumstances change.
“Where would my money be invested?”
The majority of offshore pensions providers, like birds of a feather, have tended to flock together in well regulated jurisdictions with stringent investor protection legislation, such as Jersey, Guernsey, and the Isle of Man. As a result, these jurisdictions have developed responsive regulatory regimes and highly efficient business infrastructures. Dublin and Luxembourg are also up and coming as offshore locations for retirement planning solutions but their products tend to be more suitable to a European audience.
“How do I know what to look for”
When choosing a vehicle for your retirement planning there are many areas to be considered eg:
- What are the offshore annual and administration charges? Are they unusually low or high compared with other insurance providers and if so, why?
- Which companies will get me the highest returns on my money?
- Which plan is best for me, and within that plan, which funds are going to be most suitable for me?
- Are there a wide range of fund types and sectors that I can choose from?
- Are there limitations on how and when I can take benefits and are there any limits on contributions and benefits?
- Can I pay contributions in a range of currencies (usually an important issue for an expat?
- Can my plan be denominated in a different currency to what I contribute in?
- What degree of investor protection is in place?
This is obviously not a definitive list, and proper due diligence needs to be done before any decision is made.
For instance just one of the areas to be considered, the funds that you chose for your money to be invested in, is a minefield of its own.
There are over 30,000 funds to choose from. Questions like “Do I choose one that is currently performing well and if I do how do I know it will continue to do well? or “A friend says Far Eastern Emerging Companies are where I should be ……………… what are Emerging Companies?” are very common.
Even if you do make a good choice today how do you know it is still a good choice in one, four or seventeen years time?
The difficulty is knowing what to look for and having the time to monitor your plan over the years. Consulting a good Independent Financial Adviser (IFA) or Broker, as they are often called, can help you through this important decision.
Most international retirement income providers will offer you the opportunity to take your retirement income as a cash lump sum, annual or monthly income, or a combination of the two. It’s up to you to decide which is best for you. Much will depend on the potential tax implications for you at retirement, and your intended lifestyle.
Leaving your retirement planning until the last minute may mean that you are unable to provide a decent standard of living for yourself and your dependants…
“In our opinion there are three things to watch out for when you consider retirement planning”
Firstly, try to be realistic about how much you should contribute. Make sure that you can pay the same amount after Christmas and holidays when your overall spending is usually higher. Also how much will you need in retirement e.g. for leisure, long term domestic help and, even later on, nursing care.
Secondly, your main considerations should be charges, bonuses and flexibility. Check what these are on any plan you’re considering.
Charges – With most plans there is a balance between charges and flexibility. The more flexible the plan the more you may be charged.
Basically you will be charged by the provider for running your retirement plan. This is normal as they are a company that has to make a profit. The charges are usually divided into the ‘initial charge’ i.e. when you buy your pension and then the ‘on-going charges’. These charges are taken from your fund.
Flexibility – Traditionally UK, European and American based Pensions are highly in-flexible meaning once you’ve signed up for one you can’t get out of any aspect of the agreement without paying heavy penalties or losing money. Offshore plans tend to offer much more flexibility.
A good offshore retirement plan should allow you to do the following without penalty:
Allow you to reduce your payments / contributions without penalty. For example, if you want to take a career break or end up unemployed or lose your contract.
Allow you to switch your investments between different funds within the same pension provider’s range of funds, without penalty in order to respond to changes in the market.
Allow you to have the option of retiring when you want to without penalty.
“What if I go direct to a provider that I found on the internet or a friend has their retirement plan with”
You’d think that if you by-pass an Independent Financial Adviser (IFA) or Broker and buy direct from the pension / insurance company you’d save any commission, however you’d be wrong. The Larger the IFA, the more discount or extra allocation you may get due to volumes of business written.
You will almost certainly pay the same. The pension / insurance company simply keeps the commission it would have paid to the IFA.
The pension / insurance companies have their own fixed range of products. These may turn out to be suitable for you but there may well be something better in the market which they will not offer you.
Finding out what each provider’s best products are and cherry picking the best is a great idea but often impractical. Do you have the time for this and where would you start? Professional advice will get you the right solution and save you time.
“A Professional, Independent, Global Company”
de Vere and Partners are the largest Independent Offshore Advisory Company of its type in the world and currently have over 25,000 clients in 105 countries with in excess of $5 billion of funds under administration and management.
We offer our clients advice on a global basis and as a Company we are totally independent and not tied to one specific provider and its products. We can therefore use all the products and companies in the market and offer unbiased advice.
de Vere and Partners take pride in offering on-going levels of service and contact wherever our clients are in the world.
As a company we mainly offer investments protected with Government backed security. We recommend contracts which offer Government backed investor protection i.e. Jersey, Guernsey or the Isle of Man.
At de Vere we can help steer you through all the considerations so that you can start the best plan for your own personal circumstances.
Contact us and we will arrange for one of our Professional Financial Advisers to contact you, go through your current situation and find the right solution for you and with no charge for our service.
If you haven’t started your retirement planning or want to check whether you need to do more. Act now and have the lifestyle in retirement that you deserve!
Leave a Reply