International Private Pension Plan
There are various International Private Pension Plans available for those with transient epxat lifestyles, the key is to find the right one for you. The difficulty for any international employee is the build of several pensions pots, in different schemes, in different countries. Upon reaching retirement you cannot access certain funds, whilst they are in varying currencies and of menial value. An international retirement plan is an attractive option for internationally mobile employees who are now working outside of their home country. Throughout this article, we will look at the options available, pros and cons as well as key pitfalls to avoid.
What is an International Private Pension Plan?
An International Pension Plan often referred to as an Offshore Pension Plan, International Retirement Plan or International Pension Plan (IPPS) is any savings plan geared towards your retirement. It will allow you to contribute to the scheme/plan from any country and once deposited, invest in the markets (as with any pension) with an intended investment term i.e 25 years. The objective is to build up a Nest egg for when you retire that can deliver future retirement income. Whilst invested no tax is due on any growth and only applicable on withdrawal. As you are not receiving any tax relief on the way in you do not need to pay any income tax upon withdrawal however capital gains tax (CGT) can still be applicable depending on the country that you are tax resident in at the time of taking benefit.
As there is no “official” International Pension Plan which is acknowledged by all countries they can often be branded this way by the providers. A few examples might be Zurich, Generali / Utmost, RL 360 or Friends Provident International. These, however, are expensive, incur hidden charges and lock away your monies as well as paying large amounts of commission to the adviser. The concept of saving is right, however, the structure in which they have been set up is not.
How does this compare to a standard UK Private Pension Plan?
A UK pension, such as a SIPP Self Invested Personal Pension is the private retirement scheme available in the UK. As a UK taxpayer, you will receive tax relief on the monies deposited (up to £40k gross per annum) with no tax being applicable on any growth whilst invested. Within the SIPP you can invest in an array of funds (GBP only) relevant to your risk level. You are protected within your investments through the regulation of the FCA and UK Pension Legislation. Currently, you can not access the monies contributed until the age of 55. At 55 you can withdraw 25% tax-free (tax-free in the UK) under the pension freedoms act. Thereafter you can withdraw monies from your pension fund on an ad-hoc basis. Any withdrawals will be taxed at your marginal rate.
Advantages of an International Private Pension Plan
As mentioned the International Private Pension Plan offers a good solution for those residing outside of their country of origin.
Key advantages of such plans are:
- Ability to add or withdraw from any country in the world
- Tax Efficiency via Gross Roll up of any growth – no tax due until monies are withdrawn
- Access to a wide range of regulated funds
- Ability to withdraw full amount and not restricted by your countries pension legislation
- Ability to increase, decrease, start or stop contributions in line with your changing disposal income
- No cap on maximum contributions
- Ability to make contributions in any major currency
- Ability to invest in any major currency including low-cost index tracking funds
- 24 / 7 visibility – your own login details to review investments
The disadvantages are dependant on the structure of your plan which we will cover later. As such only generic universal points have been listed below.
- No tax relief on contributions
- No protection from government legislation
- Potentially very high fees
- Potentially locking monies away unnecessarily
Contractual Plan vs Flexible Plan
As touched upon towards the beginning, various big-name providers offer “International Pension Plans” via Financial advisers with numerous so-called benefits. In short, they are very expensive, with high running costs and large amounts of commission paid out to financial advisers. This results in flat investments with any potential growth eaten away by the never-ending fees. The adviser is paid their commission upfront depending on the duration of the investment, the longer the duration the greater the commission.
I.e a 25-year plan with a £1000 a month contribution would pay the adviser an upfront commission of the expected £300,000 contribution. Furthermore, the member is often put into “trail paying funds” which in turn pay the adviser an additional % per annum. As a result, these are the worst plans possible and members all too often stop paying in once they see their investment is flat. Unfortunately, they cant then withdraw all their contributions as these are stuck within the plan to cover all the commissions paid out as well as the high provider costs.
A flexible plan allows contributions from anywhere in the world with the intention to build up a lump sum. Importantly, without the same contractual obligations and subsequent high fees. So, although there will still need to be a planned investment term i.e 25 years. (Required for strategy and portfolio allocation) The plan itself is entirely flexible. This means you can start, stop, increase or decrease the contributions (without any penalty). If your circumstances change (which they often do) you can withdraw all your retirement savings (without a penalty). Likewise, if you receive an annual bonus you wish to invest, you can do without paying huge commission to the adviser again. This can then be invested in a sub-account with a differing investment strategy or even investment term.
Existing UK Pension Options
Other factors to consider are any existing pensions you may have built up in the UK. Even if considered small in value, with the right portfolio allocation and ongoing management they can grow to become a significant amount of your final pension pot.