Ryan Frost, Harrison Brook Online

Over the last few years, more and more people have come to realise that they must examine their plan for retirement very closely in order to ensure that they are able to retire at a time, and income level, that is in keeping with their objectives. Gone are the days where your employer, or the state, would look after you in your 'golden' years.

While it is true that expats will tend to earn more than their local counterparts, the fact that they move from place to place goes against them, as it will often prevent the forming of coherent financial plans, including retirement planning.

So, what is the solution?

Expat or not, you need to be taking responsibility for saving for your own retirement. I often say to clients that you should consider future benefits payable from company schemes and the state as the icing and cherry on the cake. You must buy the ingredients and make the main part of the cake yourself - no one else will do it for you.

Once you have decided you do not wish to be dependent upon the state or companies you worked for to provide for your retirement, what are the options? In simple terms, you can either make use of a ‘state sponsored' pension/retirement plan or an international private retirement plan. We will examine both below.

A ‘state sponsored' pension is a pension plan where the local government provides a tax ‘break' to encourage you to save for your retirement. Just how attractive this break is, and whether such a plan is even available, depends upon where you are in the world. When we invest into these state sponsored retirement plans, we do so from our gross income. Depending on contribution limits, this amount is then deducted from our taxable income.

Now, this tax 'break' is not really tax relief, more tax deferral. When you access your money at retirement age, you will pay tax on the income that your pension pot will produce.

The problem for expats is that they may not be able to predict that they will retire in any particular place.

Currently, if you make use of an ‘indigenous' domestic pension scheme, you may not gain access to the funds or move the money before reaching retirement age. You may see this as a problem when you have only made contributions for a short period of time and, as such, are concerned that the value of the investment will be consumed by ongoing administrative charges and will not be effectively managed when you move.

So, you want to take your money back and move it elsewhere? Well, even if you were physically able to, you will usually have to pay back the tax relief that you have been given by the particular government that authorised your plan. The whole reason that any particular government has granted you an element of tax relief is because they think you will retire there.

So we have to ask ourselves, then, what is the solution to the expat retirement need?

Is such a solution available? Yes, but it is not about making use of individual state sponsored retirement plans but international or ‘offshore' private investment plans that exist outside of the domestic solutions.

With offshore retirement plans, you pay into them from your net income; therefore, there is no tax deferral. However, you are not accumulating any future tax liability on the contributions. You are free to have access to your fund at a time of your choosing (not at a predefined retirement age) and you are not committed to buying a life assurance income plan (annuity) when you get to retirement. Offshore retirement plans are geographically portable, so they are unaffected as you move to different places in the world. The plan stays in the same place while you move around, and it grows tax free the whole time, in a tax efficient investment area. The perfect solution to any expatriate's long term retirement investment need.

Rule no. 1: get started!

As with any important financial plan, you need to decide with your financial adviser how much it is that you need to save each month in order to reach your target retirement fund. How much you will need to save is dependent upon the level of income that you will require in the future. An important factor to always consider is the effect of inflation on future spending power. If you wish to retire on an equivalent income of EUR 30,000 in 30 years time, you will actually need to be generating an income of around EUR 60,000 to be able to maintain the same lifestyle. After making calculations of what you need to save, it may not be financially possible at this time to save at this target level. The important part is getting a plan in place and making a start. You can always increase what you pay in each month, when your salary goes up in the future. Making a START is the golden key to retirement planning.

This type of retirement plan would function in a similar fashion to a locally based one. You contribute into your retirement plan each month. You select whether you wish the fund to grow in EUR, USD, GBP or any other major currency. The money that goes into your plan is then further divided, between different underlying funds.

In summary, offshore retirement plans offer a great solution to the transient expatriate who, just like his local counterpart, wishes to invest and make financial plans for his or her future. The inconvenience and disruption of needing to re-establish a new retirement plan every time you ‘country hop' is negated by this geographically portable solution.

If you would like more information on portable retirement plans or help with your financial planning needs you can contact me on ryan.frost@harrisonbrook.co.uk or visit http://www.harrisonbrook.co.uk.

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