Money: Going away? Don't forget the pension

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The Independent Culture
Expat workers should not forget the need to plan for their retirement, writes Andrew Geldard.

Every year, thousands of people leave the UK for work in other countries, to experience a new culture, broaden their horizons, earn more money - or just get away from these shores.

In the excitement of preparing for a new life it is easy to overlook the need for financial planning - particularly building up a pension fund - with costly results.

Expats working for a government or a large international company may find that their pension provision is taken care of. Most companies that regularly post workers overseas will have an offshore pension scheme. Alternatively, if the posting is short term, they may be able to stay within the company's UK pension scheme.

Yet a large proportion of workers have to make their own provision, because they will not qualify for a UK pension when they retire.

Offshore pension schemes differ from those in the UK. There is no tax relief on contributions, but people can invest as much as they like. The capital in offshore plans grows tax free and can be withdrawn in full at any time without attracting capital gains tax.

Companies providing offshore pensions include Clerical Medical, Swiss Life, Axa Equity & Law International, Norwich Union and Friends Provident. Their plans give investor world-wide the choice of paying either by a single premium or by regular premiums, and often payments and benefits can be made in a range of currencies. Most plans invest in an umbrella of funds to give exposure to a variety of markets and currencies. George Pavlou, head of sales and marketing at Swiss Life, says: "Offshore pensions offer better flexibility and freedom compared to UK versions."

While a pension fund escapes tax liability in its offshore environment, the investor must beware of the tax it could attract when brought back into the UK. To escape this, says Michael Royde, a London-based independent financial adviser (IFA): "They could use the capital to buy a purchase life annuity, where only half of the income attracts tax, or invest in an offshore bond which allows 5 per cent of capital to be withdrawn in the UK each year, tax free. Capital can also be invested in a Tessa, a PEP or a house."

Lindsay Right, a consultant for the Jersey-based firm Robert Gordon Financial Consultants, which advises on international pension planning, adds: "While offshore pensions represent a flexible way for non-UK residents to build up a retirement fund, some have a relatively costly charging structure, although I believe that is steadily reducing. I would recommend shopping around, and scrutinising the charges."

An example of the charging structure is demonstrated by Eagle Star's Vista plan. A 45-year-old male wishing to retire in 10 years' time who puts pounds 500 each month into the plan will see deductions reduce the final value of the fund by pounds 21,127, leaving him with pounds 81,699 at age 55, assuming an annual growth rate of 9 per cent. That pounds 21,127 has gone towards the cost of protection benefits, such as waiver of premiums and life cover, intermediary commission, administration set-up expenses and a monthly charge of pounds 3.50, management and investment charges of, for example, 1.5 per cent for the managed funds. Charges are also front loaded, so it would be unwise to encash the plan before the 10 years are up.

It is also worth considering other types of offshore investments to build up a retirement pot. These include the "Money Multiplier" guaranteed bond from the Liechtenstein-based American Security Life, a low-risk stockmarket investment, as well as offshore unit trusts provided by investment houses such as Schroders and Barings.

Thus there are solutions for the pension needs of the overseas employee. How best to capitalise on them depends on factors such as age and priorities in life. Yet it would be unwise to ignore them completely.

Contacts: Swiss Life, 01732 582000. Robert Gordon Financial Consultants (01534 888330); Michael Royde (0171-792 3700).

For a local IFA, call 0117 9711177.