Anton Seatter, Director – Employer Solutions, was one of the industry experts who contributed to an article published by International Adviser magazine on retirement and the savings and pension options for expats. In the article, Anton discusses the benefits of International Pension Plans (IPPs) and International Savings Plans (ISPs) for individuals working away from home. Below he provides additional thoughts on the reasons why an IPP or ISP might be attractive to your international population.
Simplification. Having a single centralised retirement pot, rather than a fragmented retirement provision across a number of service providers and jurisdictions, can help expats rationalise their wealth, making it easier for them to manage. The fact that a member can continue to pay into their IPP/ISP regardless of their country of residence is also a real benefit – subject to local tax advice of course.
Flexibility. There is far greater flexibility with regard to how contributions are made and in which currency assets are invested. This can be attractive to expats who intend to return to their country of origin and take benefit in a different currency to their payroll currency as contributions can be converted on receipt, removing future FX risk. In addition, IPPs/ISPs are generally more flexible than domestic equivalents on exit, as they can allow members to take 100% lump sum payment and do not require the purchase of an annuity.
Risk is mitigated. The fact that assets are held in a tax transparent location limits risk of double taxation on distribution or drawdown, with no local taxation in Guernsey or Jersey. Expat investors also benefit from the fact that Guernsey and Jersey are well regulated and highly regarded International Finance Centres (IFCs).
The tax treatment. One of the biggest differences between international and domestic plans is the tax treatment. Onshore pension plans may attract tax relief at contribution whereas this is not available for IPPs/ISPs. However, as employment taxes will have already been paid, withdrawals may be more efficient – though, of course, this will depend on the member’s personal circumstances.
Who benefits? There are a number of client categories that would benefit from an international scheme, including: international assignees, employees in locations where there are fragmented retirement provision such as the Middle East, or expats who cannot access a local scheme, such as in Singapore.
Companies determine the plan design based on their employee base and the strategic objectives for the plan. There is a trend of companies moving to savings plans as they do not have to worry about deferred members.
Sometimes the company will build specific requirements into the plan which will, by default, determine whether it is going to be a savings plan or pension. It is also worth noting that some jurisdictions favour one arrangement over the other.
The differences between the two schemes. The main difference between IPPs and ISPs is an IPP is a pension and requires members to reach a specific age, e.g. 55, before they can start to take benefit whereas members with retirement savings in an ISP will largely be paid out upon leaving service.
This means companies operating IPPs can end up with large numbers of ‘deferred’ members, i.e. members who no longer work for the company who are not yet eligible to take receipt of their pension. Whilst costs are generally passed back to the members, deferred members are still part of the member base and the company will need to have regard for them as part of the governance process.
Their role in estate planning. As far as ISPs and IPPs are concerned, member assets are held in notional accounts by a trustee in an offshore discretionary employee benefit trust. IPPs/ISPs are held outside the member’s estate and the member will need to name beneficiaries when they join the plan. The trustee will take these wishes into consideration if there are assets within the plan post-death.
Why companies like international plans. In a similar way to the employee being able to simplify their arrangements, an IPP/ISP also helps companies simplify. A single centralised retirement pot means companies can reduce the number of service providers they work with and have less pensions compliance to navigate. This assists in streamlining costs and allows the company to focus its resources on areas such as plan governance.