Most expats will be planning or hoping to retire early.
To make sure you can afford to stop working when you want, you will need to have thorough retirement planning in place and for most people this will mean creating and contributing into a pension or optimising an existing pension.
Offshore Investments & Pension Planning
While expat salaries tend to be at the higher end of the scale, very often the package does not include a pension scheme as this is not a statutory requirement in many countries. Even where a pension does exist, an expat’s working situation tends to be changeable and may not last a lifetime. So, to continually start, stop and freeze a pension when you move will create a major headache and erode pension capital when it comes to retirement.
Specific schemes exist to help expatriates with their retirement planning requirements in certain jurisdictions. These plans are not the same as UK private pension schemes. There is normally no minimum age to start drawing income, or where there is it can be as low as 50. The retiree may be able to take possession of the entire asset in cash if need be.
Planning your retirement using offshore financial products may hold significant benefits for British, and many other, expats living overseas.
The Benefits of an Offshore Pension Plan
A non-UK resident drawing an income from a UK pension will have to pay UK tax on that income unless they live in a country whose double-taxation treaty has a pension-specific clause. Furthermore, tax breaks that were available in the past are becoming increasingly limited.
Restrictions have been placed on higher-rate tax relief for those whose income is GBP 150,000 or more and for those whose total pension savings exceed GBP 20,000. An offshore pension plan has none of those restrictions.
The lump sum issue can be problematic too. With a UK pension scheme, you can withdraw a lump sum of up to 25% tax-free in the UK at retirement date, typically when you are 65. With an offshore scheme, you will be able to receive income gross and depending on the country in which you live, you may pay substantially lower tax.
Freedom and Flexbility
With an offshore pension, you have freedom and complete control. It acts like any other investment vehicle; you are free to move money about within it, change where your money goes and withdraw your full pension upon maturity.
Contact our team for expert retirement planning advice, including tips on how and where to invest your money.
Your UK pension plan isn’t in fact your asset if you are in a defined benefit or final salary scheme; you simply have a small share of a large pot. You must share the financial prerogatives and risk-profiles of perhaps hundreds of thousands of people. Moreover, you don’t know what you’ve invested in or why.
With an offshore retirement plan or pension, you are in control. Together with your specialist financial adviser, you’ll carefully formulate a portfolio strategy to suit both you and the market. Your portfolio will comprise award-winning investment strategies, and the allocation of your investments will change with the market and your attitude to risk.
It’s not uncommon for the same contributions to be worth three times more on maturity in an offshore plan than in a UK pension plan.
Your UK pension does not form part of your estate, which is good news from an inheritance tax perspective. However, after your death, your spouse might receive a reduced income from the pension and there will probably be nothing to pass on to your children.
On the other hand, an offshore pension can generate a significant lump sum which, if managed correctly, will generate a good income while preserving your capital. You could either pass on this capital or wrap it in trust to provide an income to your relatives forever. Contact our team for personalised retirement planning advice.
UK Lifetime Allowance Charge
With an offshore pension plan, you can build up as much of a retirement fund as you like. Because you can properly diversify your investment across asset classes, it may well be the only retirement plan you’ll ever need.
Whereas the UK government will tax you on anything above GBP 1.055 Million, with an offshore plan you can build up a pension fund to whatever amount you deem necessary.
With a UK pension, you’re restricted to just GBP, meaning you run a currency risk if you retire abroad. With an offshore retirement plan, however, you’re able to invest in any currency of your choosing.
Deciding on Your Pension Requirements
What features are important to you with regards to your pension?
These are some of the most common requirements we encounter in working with our clients:
- Increase or decrease your contributions
- Pause your contributions
- Choose a plan in the currency of your choice
- Pay your contributions by credit card or standing order
- The security of the plan to match or exceed that of the UK
- Reassess risk levels as you near retirement
- Assign beneficiaries to your plan for easy transfer
- Option for withdrawal of cash midway through the plan
- Invest ad hoc lump sums to boost your pension.
Get in touch to discuss your preferences and requirements with one of our pension specialists.
UK Pension Transfer Solutions
Historically, British expatriates and other nationalities that have worked in the UK with UK-based pension plans have had very few options but to remain in their existing scheme. This left them with little control over their investments and pay-outs.
In many cases, their investment, currency choices and benefit options are now inappropriate given their current country of residence. Whatever your unique personal circumstances, you should take professional qualified advice to see whether you can benefit from transferring your UK pension.
In April 2006, it was announced that anyone with a personal or occupational UK pension fund who has left or intends to leave the UK to become non-resident for tax purposes may be able to transfer their retirement savings to a more appropriate scheme.
Please note that the UK state pension benefits cannot be transferred.
Pension Risk Management
Managing your pension portfolio requires more attention than a traditional UK-based pension scheme, but the benefits far outweigh the negatives. The key here is adapting your portfolio allocation regularly to suit your needs, and this will be a periodic discussion topic for you and your Forth Capital adviser.
It usually makes more sense for a young person starting a pension scheme to take more risk than someone who is about to draw their pension. Indeed, an early-stage retirement fund has much more time to recover from a steeper dip than one that is nearing maturity.
Over the longer term, higher-risk strategies may provide greater returns, though the volatility of the value will be higher. Closer to retirement age, your adviser will look to reduce risk, lowering volatility, and by doing so locking in the gain you’ve made over the last couple of decades.
Your adviser will understand risk management, have experience of cultivating risk strategies, keep up with new products and services and thoroughly research your options for you.
What to Do Next
With years of experience collaborating with some of the world’s leading pension providers and financial institutions, Forth Capital is in the best position to offer retirement plans that meet clients’ changing needs throughout the many stages of life.
Working with Forth Capital
When working with Forth Capital, you are guaranteed to receive advice with no obligation on your part, and confidentiality is assured. Our expert advisers will give you advice that is individually tailored to your needs and inform you of the perks and pitfalls of the pension plans available to you.
In addition to providing pension advice, our team is equipped to advise you on education planning, international tax and pension transfers to help you achieve – and surpass – your financial goals.
Contact a member of our team to start discussing your situation and financial objectives today.