A) Offshore Expat Pensions
A) Definition: Not UK Based
Through out their career, expats in general live in a number of countries. Which each tend to have their own legal, tax and product regime regarding workplace pension plans.
In case expats are planning to retire abroad, it is understandable to look into the possibility of an international and offshore pension plan. The thought being that it might be good to prevent all those national regulations and to collect all claims in one international offshore pension plan.
The offshore pension fund industry was developed in the 70′s when UK-based financial institutions established non-domestic fund management providers for expatriated investors.
These Offshore funds and Pension Plans are specifically domiciled outside of the UK. They are therefore regulated by the authorities in the country where they are located. Established offshore investment centres such as the Isle of Man, Malta or Gibraltar with their independent legal, political and regulatory framework, offer many providers and options.
B) Possible Advantages
• For expats with UK pension claims, QROPS/QNUPS might lead to tax benefits;
• In case it is possible to have all and optimal investments at very low total costs, that would be a relevant factor to take into account besides other issues.
C) Possible Disadvantages
• Complex factual, legal, tax, investment situations which make it not directly transparent what is the best option;
• The costs tend to be (too?) high and not always transparant;
• The local regime might change in the future which can have a negative impact;
• Their might be (substantial) negative currency aspects.
D) Caution Advisable
International Offshore Expat Pension Plans might in the end be interesting. But as the (international) tax and investment issues tend to be complex, it is advisable to obtain qualified advice about whether or not to acquire them. We advise our clients not to go that way if it is not 100% clear that this would be their best option.
In this regard we caution you as we hear from clients that certain consultancy firms try to persuade clients to opt for these plans in order to make money themselves. Instead of placing the client’s interest central as the correct advisor will always do.
E) News April 2020
Check the UK 2020 recognised overseas pension schemes notification list
Find schemes that have told HMRC they meet the conditions to be a recognised overseas pension scheme
This list contains pension schemes that have told HMRC that they meet the conditions to be a ROPS and have asked to be included on the list.
An updated list of ROPS notifications is published on the first and 15th day of each month. If this date falls on a weekend or UK public holiday the list will be published on the next working day.
Sometimes the list is updated at short notice to temporarily remove schemes while reviews are carried out, for example where fraudulent activity is suspected.
The requirements to be a ROPS changed from 6 April 2017. You’ll need to check that the scheme you’re transferring to on or after that date meets the new requirements.
HMRC cannot guarantee these are ROPS or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you have to pay tax on any transfer of pension savings.
HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that do not meet the ROPS requirements even when they appear on this list.
This includes where the ROPS requirements have changed and where taxpayers are overseas. HMRC will also charge penalties in appropriate cases. Find out about the changes for ROPS requirements.
Tax relief is given on pensions to encourage saving to provide benefits in later life. Accessing benefits (directly or indirectly) before the age of 55 will result in a liability to UK tax charges in all but the most exceptional circumstances.
Expats: Beware of QROPS Pension Consultancy
Expats are often actively contacted by financial organizations that advise them to switch to QROPS. They provide a long but standard report 'for free' which states that 'there are tax benefits and it is great for your investments'.
When checked by an expert, these benefits very often do not exist.
I will be frank. I seriously dislike such an approach and contempt for the financial interest of private clients and families. Amazing that the financial supervisory agencies are not yet on to them like a hawk.
If I would work there.....
UK EXPAT PENSIONS: GUERNSEY ON BLACK LIST
As of January 1st Guernsey and The Isle of Man have been placed on the Dutch Black List re tax evation.
In practice some advisers mentioned in QROPS perspective that Guernsey might be interesting. If you focus on the sole interest of the client, Guernsey was often already not that interesting.
Best Advice re UK Pensions and QROPS: Make it simple, gather all facts, focus only on client interest and then decide!
B) International organization Expat Pensions
A) Regular Pension System
Pension coverage has legal, tax, actuarial and product aspects. Thus the coverage can differ substantially in each country. Nevertheless, most countries have a pension system which consists of the following three Pillars:
Pillar 1: State Pensions
Pillar 2: Occupational Pensions
Pillar 3: Private Pensions/Annuities
B) International Organization Pension System
Worldwide there are many international organizations. In Holland there are 40 international organizations registered. Well known institutions who often have their legal basis due to the United Nations, NATO or European Union.
Expats who work for these institutions often face a special kind of pension coverage. Due to the special and often unique legal identity of each institution, the mentioned three Pillar coverage system often does not apply.
Often there is no distinction between the three Pillars. Often the tax situation is also very different from the national tax legislation and complex.
Often the occupational pension coverage has several very strict requirements which for a standard corporate pension system are highly unusual. But which is quite normal for such international plans.
C) Conclusion Expat Pension Planning
Expats who work for international organizations should be aware of the exact implications of this special situation on their pension coverage. The translation of their wishes into optimal coverage deserves extra care.
More in particular they should pay special attention to:
- What might threaten or degrade their pension coverage?
- What are the possibilities to optimize their total pension situation?
- Is transfer of value smart in order to safeguard coverage or is the risk too high?
- Is it possible and if so attractive to acquire additional state pension claims from the previous residing country?
- Is there a difference in offered coverage as more limited Social Benefit or more extensive Pension? Often especially relevant regarding Next of Kin and Disability coverage.
- What is the exact tax treatment of the pension benefits now and in the pay-out phase?
- Is international double taxation of pension benefits prevented and if so is it handled in the best way possible?
We are familiar with these issues. If you might have questions, feel free to contact us.
D) News April 2020
OECD: Countries Should Urgently Adjust Pension Systems To Changed World Of Work
Governments should urgently reform their pension systems to ensure that the growing share of workers in temporary or part-time employment can contribute enough during their working lives to receive an adequate income in retirement, according to a new OECD report.
Access to personal pension plans should not discriminate between different types of workers, for example, and people should more easily be able to transfer their pension rights and assets when they change jobs.
Pensions at a Glance 2019 says that non-standard employment, such as self-employment, temporary or part-time work, now accounts for more than one-third of employment across OECD countries.
Part-time work is three times more frequent among women than among men and self-employment is particularly common among older workers. “ Governments need to quickly put in place more inclusive and harmonised pensions for all,” said OECD Secretary-General Angel Gurría.
GLOBAL PENSIONS: EMPLOYERS WITH 'CASH PENSION PLAN'
Always when a new NGO client states that they have chosen not to have a formal pension plan as they do not like red tape and all that, I totally understand their position.
After which I explain that not granting their employees the related huge tax benefits is extremely negative for their pension build up capacity.
Please combine efficiency and flexibility while still granting your employees those huge tax benefits which do not cost the company one Euro/Dollar/Ruble/Yen/Pound/Krone/Rand.