One reason for professional staff to actively contemplate a move abroad is because they know that they will probably be able to benefit from an attractive relocation and remuneration package. Indeed, some employers in less than favourable nations or offering less than ideal jobs abroad sometimes make the pay package that much more appealing to get the best potential workforce possible in the circumstances.
In the past, one of the most appealing prospects for many professionals moving abroad was that employers overseas still sometimes offered final salary pension benefits after a set number of years of employee commitment. However, as a recent survey from Mercer, the international human resources specialists reveals, cutting back on pension benefits is just one way in which international employers are thinking about cutting costs and keeping afloat.
So, are you sure that your expat pension pot is properly protected? Are you relying solely on your employer to provide you with an income in retirement for example? Or have you thought about diversifying your pension options to make sure that all angles are covered just in case your job is less secure than you thought?
Other considerations that expatriates need to have when working overseas and saving for retirement is the currency their retirement pot is saved in compared to the currency they are a) remunerated in and b) in which they intend to take their pension, what to do if they are made redundant and paid off, and whether the new-ish QROPS offshore pensions that are backed by the British government make sound financial sense on an individual basis or not…
In this article we will examine all of these issues.
Is Your Employer Cutting Back Your Pension?
According to Mercer’s survey of companies in 100 different nations globally, up to 17% of companies questioned stated that they were being forced to think about cutting employee benefits to stay afloat, with final salary benefit pensions coming under the microscope first. This is bad news for those expats who moved to live and work abroad specifically to gain access to the best long-term benefits available. Employees who are currently opted in to an attractive pension scheme with their employer need to review their contract to determine whether this benefit can be altered or even withdrawn at any stage.
Have You Diversified Your Pension Saving?
Whether you’re in a final salary or some other company based scheme, have you diversified your pension saving? I.e., have you got a personal pension or offshore/onshore long-term savings equivalent in place? If not, why not? Yes, your employer may be offering you the moon in terms of what you’ll potentially get upon retirement, but what if your employer withdraws that benefit, goes bankrupt and takes the pension scheme with him, or the final returns from that pension are not what you were hoping for as a result of any number of reasons.
You need to actively think about having some other form of personal pension savings scheme for your long-term income requirements. An offshore and expatriate specialist financial adviser will be able to examine what you have in place and come up with the perfect product to match your requirements and even your risk profile. Don’t rely on one path for your pension benefits…it’s too dangerous to do so.
Have You Thought About Your Exposure to Currency Fluctuation Risks?
No? Well, I’m not surprised - few expatriates have. And fewer expatriates still would consider taking a punt on the FX markets! And yet that is exactly what you are doing if you don’t think about the currency you’re earning in in relation to a) the currency you’re saving for retirement in and b) the currency you’re likely to take your retirement income in.
For example, say you take your salary in euro, yet you save offshore into a sterling based long-term savings mechanism that you’ve designated for your retirement income. Then say that when you come to retire you’re moving to your villa in Florida where you will spend in dollars…well, there you are playing the currency game to your disadvantage. Yes currency rates can move in your favour, but you over the long-term they will not consistently do so. So, speak to an adviser again to determine how you can beat the currency fluctuation game and protect your savings from potential FX market erosion.
What to Do with a Redundancy Package
If you are made redundant by your current employer and you’re paid a lump sum in the form of a golden handshake, what should you do with the money? Some might say you should use it to pay off your mortgage, others might suggest you live off it for a few months whilst you regroup and think about your options. However, what about putting it away safely to a) protect you if another rainy day comes your way, or b) putting it as a lump sum towards your future retirement income needs?
Both options are even potentially available to you if you opt to come back onshore to the UK whilst you think about where you want to move to live and work abroad next. There are options available to some, such as utilising offshore bonds for the protection of capital from taxation erosion. Of course, all of your options depend on your tax status and your own personal circumstances, and an adviser who understands fully your status when you’re at home or abroad can assist you to find the right home or the right method for the ‘disposal’ of your redundancy payment.
And Finally, Have You Heard of QROPS?
Qualified recognised overseas pension solutions of QROPS are an offshore pension solution to those who live and work abroad or who intend to retire overseas. They are backed by the British government and they are highly flexible retirement savings plans suitable for many individuals. However, not many people know about them yet. This is probably because pensions are not exactly sexy and you’re unlikely to find them being gossiped about on Twitter or Facebook!
However, if you like the thought of not having to buy an annuity with your pension, of being able to leave excess wealth to your loved ones when you die, of not coming under the British taxman’s radar after five years of having your pension offshore and potentially utilising your investment in terms of maximum taxation benefits, ask your independent financial adviser about QROPS and their suitability for you personally.
In conclusion, if you’re living and working abroad – or even just planning on retiring abroad, you need to make sure that your pension income is as secure and correctly invested as possible. To do so, we suggest you consider reviewing your situation with the aid of a financial adviser who understands your tax status at home and abroad, and who is well versed in the art of saving and investing onshore and off for expatriates and would be expatriate retirees.
To find an adviser in your region, .(JavaScript must be enabled to view this email address) and we will recommend a preferred partner if we have one in your location. You are under no obligation to take their advice, but you can at least hear it and decide whether it makes sound sense for you.
