Expat workers face a financial challenge setting up a pension because increasingly they are roving problem ‘firefighters’ jetting between countries rather than settling in one place.
The fast-moving world of an expat is often at odds with the slower, more staid long-term issues involved with retirement planning, according to a survey by employee benefits firm Mercers.
Researchers found that 10% of expats are roving consultants employed across borders who face problems with financial planning.
Just 12% of companies offer expats offshore retirement schemes that are not attached to a specific country, while 38% claimed they did not have enough employees to justify the cost of a scheme, and 17% had never considered the option.
Pension gap worry for expats
This pension gap is a real cause of concern for expats who may not know when and where they will retire.
Mercer’s Mark Price said: “Professionals who could bring their international experiences to a number of operating environments were increasingly vital to companies looking to create or expand new ventures abroad and gain a competitive advantage – but that arranging benefits for such workers could be complicated.
“Offshore plans may not address all concerns, such as taxation or facilitating exclusion from host country pension arrangements, depending on the jurisdictions concerned, but do go some way to allowing for continued pension plan membership under a single arrangement whilst employees are on various assignments.
“They are very effective in providing consistent cover for mobile populations and in jurisdictions where no appropriate plans exist.”
Establishing tax residency
For British expats and international workers with UK pension rights, the first step in retirement planning is establishing tax residency.
Over recent years, many British expats have had their financial strategies overturned by the courts because they believed they were tax resident in one country when they were still consider UK residents – and liable for tax in Britain.
The key to deciding whether you are tax resident in the UK is not where you live overseas or how long you have lived there, but what connections do you still hold with the UK?
If you maintain a home in the UK, the likelihood is you are tax resident.
Step out of the UK tax loop
If so, the pension options are limited to onshore solutions – like a self-invested personal pension (SiPP). The benefit for an expat is contributions in to a SiPP still attract pension relief on contributions, even if the investor is working out of the country.
For non-residents, one solution is a qualifying recognised overseas pension (QROPS), which is outside the UK tax loop and offers flexible tax, investment and estate planning options.
Another advantage of a QROPS pension is that it can be based offshore in one tax jurisdiction while an expat can move between countries.
For UK residents working overseas who decide to stay away from the UK permanently, any SiPPs or other UK pension fund can be ported in to a QROPS – and that includes any tax relieved contributions accrued prior to the transfer.
Importantly, do not switch pension funds out of the UK in to a QROPS before taking professional advice confirming tax residence and how cross-border tax laws will affect the payment of pension benefits.