Expats Stop Risking Your Retirement Income

You’ve probably had it drummed into you a thousand times already that as an expatriate you’re in a uniquely advantageous position to make the most of your time abroad and save more intensively for your financial future.  Sites such as ours talk about the ‘expat advantage’ all the time, and if you read any other form of financial publication or even talk to other expats in the know or even a financial adviser, you’ll be well aware that in theory you have a real lead over your peers back home now that you have moved abroad.

You may well be earning more, spending less and paying less tax by living abroad – after all, research shows that professional expats’ salaries are higher than they were when they lived and worked onshore, and the cost of living has risen overseas, but not as much as in the UK for many expats, and finally, expats are often able to save or defer tax.  Therefore, in theory, you can use your advantageous financial advantage as an expat to get ahead in the savings stakes.

However, expatriates actually face a pension pitfall, and many expats are unaware that they are risking their retirement income by not taking advice when it comes to how their changed status will affect their final pension benefits and allowances.  In this article we’re going to break it down for you, we’ll show you the risks you’re facing as an expat, and we’ll show you how you can actually get ahead in the retirement savings race.

Expat Pension Pitfalls

If you move to live and work abroad for a period of time and then you repatriate or you relocate, you run the risk of jeopardising your future state pension entitlement unless you’re aware of the taxation situation you’re in, and you take advice about how best to secure your national insurance type contributions.  In the UK your national insurance contributions go towards your final entitlement for any state pension benefit.  The average British man needs to be paying full NI contributions for about 44 years to get the current full state pension entitlement.  But if you break out of the British workplace and go and earn an honest crust abroad for a period of years, you’ll be breaking up the amount of time you pay into the NI scheme in the UK.

If you’re relocated by a British based employer there’s a slim chance they’ll continue making NI contributions for you.  But more likely, you’ll end up paying tax locally and be paying some form of contribution to any state scheme in the country you’re living in.  Whilst this is all well and good, the vast majority of expats don’t actually pay in for long enough or remain living in that given country for long enough to get the equivalent of their state pension scheme when they retire – if indeed there is even a state pension scheme.

So, expats can really screw up their chances of any decent level of government help in retirement when they move abroad unless they think carefully about what they are doing.  It is sometimes possible for you to make voluntary NI contributions in the UK and to top up and catch up on missed years – however, whether this is the best method of approach for you needs to be carefully determined with the assistance of a financial adviser.  Try and find one who will give you an honest appraisal of all your options, rather than one who is just trying to flog you an alternative pension scheme – because whilst, as you will see in a moment, it makes sense for you to have your own personal pension, if you can secure your potential future income in multiple ways, so much the better.

Expat Pension Advantages

Traditional onshore personal pension schemes are not only inflexible in terms of the amount you can contribute o them each year, but they are inflexible when it comes to how and when you can draw down your pension income.  Your onshore compatriots are therefore restricted…but as an expat, you are not!  Offshore pension schemes and retirement-suitable savings schemes are far, far more flexible.  What’s more, if you have an onshore pot worth over fifty thousand pounds, you can now potentially benefit by transferring that pot offshore when you expatriate.  The British government has come up with a new scheme called QROPS (which stands for qualified recognised overseas pension scheme) that allows some expats to move their onshore pot to an overseas scheme that is so much more flexible.  You don’t have to buy an annuity with it for example, and what you do do with it can be much more beneficial as well.

Even if QROPS isn’t for you, offshore savings and investment schemes suitable for retirement savings are manifold – and as an expat you can benefit by contributing more into such a scheme whilst you’re potentially earning well whilst overseas.  You can add in lump sums, you can be more adventurous in the way you invest funds, you can even be more flexible in how you save and when and how you draw down any income.

Never Too Soon to Start Pension Savings

Did you know that if you start saving for your pension in your 20’s as opposed to your 30’s you could actually double your retirement income!  That’s because the sooner you start saving towards retirement, the sooner you begin benefitting from such effects as compound interest.  So, it is never ever too early to start saving.

Never Too LATE to Start Pension Savings

At the same time, if you’re in your 30’s, 40’s or even your 50’s it is never ever too late to start saving towards retirement!  There are five tips to take on board if you want to max your potential pension benefit and you’re an expat and a late starter and they are: -

1) Determine how much you already have in the pot – perhaps you don’t have a pension, but maybe you have onshore ISAs, offshore savings accounts or even a property that you let out.  Speak to a financial adviser and work with them to determine what assets you have that will help fund your retirement income.  You may be pleasantly surprised at what you do have and what it can equate to in terms of a potential income when you retire.

2) Work out how much state support you’ll get – if you’ve contributed into the British NI system or you have contributed overseas into an equivalent state savings scheme, work with your adviser to determine what, if anything, you will receive from the state in theory.  This way you have a basic level to begin from.

3) Start saving intensively – as an expat we have already mentioned the fact that there are highly flexible and advantageous offshore savings and investment vehicles available to you.  You can utilise the best of the bunch and put in anything and everything from this years bonus to whatever you have left in your current account the day before payday.  You can have your bank ‘sweep’ your excess cash into a savings scheme each month for example, and you won’t even know you’re saving!

4) Look at all the alternative savings methods available to you – if you don’t want a traditional pension, look at what alternatives are on the market – from fixed term bonds to downsizing your property abroad and releasing equity in cash.  Get advice before you proceed however.

5) Retire later! – And last but not least, consider working for a few years longer, because the longer you work and earn an income, the less time you will have to live off your savings, the more time you will have to save more and the more time your savings will have to grow!  If you want to retire, what about working part-time instead for a few years?

And finally, remember that you are in a unique position as an expat, and you do have many financial advantages.  However, you are at risk from losing out on any state assistance, and you are at risk in terms of not having enough to retire on if you don’t get started with your savings plan today.  If you want help to find an adviser, .(JavaScript must be enabled to view this email address) and we’ll help you locate a qualified adviser who can help you.