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How to plan your retirement

By Craig Welsh - Topics: Investments, Pensions, QROPS, Uncategorised
This article is published on: 28th March 2012

Most expats today know they can’t rely on the state or even their company pension schemes to keep them in a comfortable retirement. Here we look at an international savings plan, designed for expats who are often on the move.

We all work hard and when the time comes to enjoy retirement, we’d like to be financially comfortable enough to enjoy it!

David moved to the Netherlands from England one year ago. The 30-year-old works in IT and earns approximately EUR 4000 per month. He is planning to work in the Netherlands for another five or six years and then he thinks he may move on to another country before probably ending up back in the UK.

He feels that he would like to have the option to retire before the company pension age of 65. He has built up some cash savings as his “emergency fund”, and this can be used in the event that he loses his job or something else unforeseen happens. He thinks it is sensible to set aside an extra EUR 500 per month for the longer-term, but wants to know how he can do this best.

Retirement planning for internationals

It is becoming abundantly clear that, as individuals, we have to take more responsibility for our own retirement planning. It will not be enough to rely on employer pension schemes (where many people are only making minimum contributions and most final salary schemes are closed to new entrants) or, indeed, government support.

As we have seen, most Western nations are now running huge deficits and are considering raising state pension ages. Furthermore, most developed countries have an ageing population, meaning that fewer people will be working to fund those who are retired.

Of course, if you are a contractor or self-employed, you will not be accruing any company pension benefits at all. Taking responsibility for your own finances is therefore even more crucial!

Often, expats are in good jobs and like to think that they will have options in later life in terms of retiring early or pursuing other projects. They can also be in a position to set some of their income aside for the longer-term, but where best to put it? When you are living and working abroad, it is often difficult to know how to use your money sensibly.

You should, of course, look into which tax-efficient savings schemes are available in your country of residence. While these differ from country to country, there are usually limits on how much you can contribute to these schemes and sometimes there are restrictions on when you can access the money.

Solution for David: International Savings Plan

David should consider an International Savings arrangement. By putting his EUR 500 per month into an International Savings Plan, David can continue paying into it even if he moves to another country. He is also not tied to a particular retirement age. Moreover, he retains control of the money at the end, as he is not required to give up the capital for an annuity (i.e. give up most of the money in the pension for an income).

Key features of an International Savings Plan:

Portability
If you move back home, or work in a different country, you can take the plan with you and you can continue to contribute to it. This is a major advantage of using an International Savings Plan, as you cannot do this with most other pension schemes. Instead, expats are often left with a number of small pension schemes scattered across different countries.

Flexibility
Most International Savings Plans will take into account the uncertainties of working internationally and allow you to control how and when you make contributions, as well as how much you contribute and in what currency. Plans can be started from around EUR 150 per month.

Control
It is a private plan, which you can control. For example it doesn’t need to tie you to a specific retirement age and doesn’t require you to take an annuity (exchanging capital for a lifetime income). You can choose when and how you use the money you have saved, and retain control of the capital.

Investment choice
Most International Savings Plans give you cost-efficient access to an excellent range of funds, to suit most risk profiles. You can switch these funds at any time. This is important, of course, as you get closer to the point when you actually need to use the money; for example, it is not advisable to be fully invested in shares with only a year or two left until you take the money. Regular reviews are important!

Tax-efficiency
Savings are usually based in a tax-efficient environment, where they can grow tax-free. Contributions are generally not tax-deductable.

Other points to note
Financial strength and regulation are important factors and each individual will have different requirements. This can depend on your current country of residence and your expected destination (i.e. where are you most likely to be in retirement?). These factors should all be taken into account as this can impact which type of savings arrangement will suit you best.

For example if you intend to retire in France, you should be aware that some plan structures (with assurance vie status) are particularly tax-efficient in France, while others won’t be.

Retirement plans should be regularly reviewed, as part of your overall financial planning. One of the reasons why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated and qualified independent adviser who should offer regular reviews as part of their ongoing service.

The sooner the better!

The sooner you start to set aside something for the long-term, the better! Your money then has more time to grow and allow you to build a comfortable retirement pot. Consider the “Cost of Delay”; the lost contributions and compounded interest that would have been earned. “Putting it off for now” can cost you a considerable amount and only means you have to save more in later years.

The advice is therefore to set aside whatever you can from your monthly income and start planning today.

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