This is the first of our articles about the opportunities offered by effective financial planning for expats. Traditionally, a lot of expat pension planning revolved around a savings product that did not offer some of the flexibility and tax advantages available to the long term expat.
Effective planning for retirement does not revolve around a product, but should be based on advice based solutions that are tailored to the individual needs of the expat. The days of “you can have any colour, as long as it is black”” are in the past. Whilst the traditional forms of savings products for retirement still have an important place for many people. The market now provides a number of financial planning tools (governed by legislation) to assist people provide for their retirement.
Broadly speaking there are three areas that we will focus upon.
The substantial tax breaks offered to employees and employers for pension planning as an expat. ( This can also benefit the self employed)
For those that qualify for this type of planning, there are substantial benefits-
• Substantial employer contributions are permitted
• Usually no tax or social insurance deductions from the employee and employer
• Possibility, depending upon residency, of accessing the whole fund tax free as a lump sum from the age of 55 or upon leaving employment.
This will be of interest to professionals on a good salary package that are looking to make the most of their overseas earnings.
Opportunities for pension funds from the UK
For those that have built up pension funds in the UK (whether UK expats or non-UK individuals that have such benefits in the UK), rules allow for the transfer of these funds to a number of different locations throughout the World
This will be of interest to those that are looking to have greater control of their pension monies, in terms of investment control, currency control and taxation of benefits.
Currently, there are proposals to change some of the rules of these offshore plans in April 2012. These changes have been generally welcomed by pension professionals and we will look at the proposals in more detail.
Retirement solutions that combine asset protection and inheritance planning.
For those that have free capital and are looking to set up a tax effective pension fund, there is an ideal solution. This capital can include property and this lends itself to those that are interested in genuine pension planning, that provides additional protection against inheritance taxes and possible future creditors.
Food for thought
Imagine you had started to put aside 10% of your earnings from the day that you started work.
Just think how much, even with modest growth, you would have now and how easier it would make planning for the future.
As an example, if someone at the age of 21 had put aside 10% of earnings ( based on very modest earnings of 15 000 Euros per annum) and had an average of 5% per annum wage increases, with 5% growth, then there would be over 125 000 Euros in an account by the age of 45. For people with larger salaries the figure is considerably larger.
We intend to go look further into these opportunities in more detail with subsequent articles. Financial planning for retirement should be seen as an ongoing advice based process, not reliant up a specific product or investment.
Christopher Lean is a consultant at Square Mile Financial Services and an Associate of the Personal Finance Society (Chartered Insurance Institute).