Investment Offshore Guide .co

This guide could be of interest to anyone, whether or not resident in the UK, although it will most likely be of more use to those who are resident or domiciled abroad.


Retirement Planning

As our life expectancy increases, the number of years that we can expect to live in retirement increases. Soon many people may well spend more time retired than they did in work; if they can afford to!

Why do so many of us constantly push the thought of retirement planning to the back of our minds?

RELUCTANCE.

1. Reluctance to save for an event that seems so far off

2. Reluctance to tie in to an inflexible pension scheme

3. Reluctance to put a large portion of our current income out of reach for the long term

But in terms of retirement planning, putting off until tomorrow that which you could get done today will end up costing you very dearly as the following graphic illustration shows.

The cost of delaying your pension planning is illustrated here based on the desire to achieve a fund of £1,000,000 at the age of 60 using a typical offshore retirement plan with a net annual return of 5%.

If you think these figures are ridiculous then just consider the new legislation that has been enacted since 6 th April 2006 (‘A Day,’) and the limits allowed under those rules.

It might be more realistic now to consider an older retirement age, but is that acceptable to you?

Considering the cost of delay, don’t you think it’s time you looked at the bigger picture and found out what options are available to you as an expatriate?

This chapter will uncover the myths of retirement planning and it will attempt to give you a fair indication of what can realistically be achieved and show you how to fulfil your retirement goals.

POPULAR RETIREMENT MYTHS.

i) I’m too young to worry about retirement planning…

Every month you delay your retirement savings planning, you significantly reduce the value of your future potential retirement fund. Or put another way, every month you delay your retirement savings planning you significantly increase the amount that you will need to invest tomorrow to achieve the same level of retirement income than if you’d started today.

If a 25 year old and a 35 year old were to start saving for retirement at 55 and the 25 year old invested £300 a month towards retirement, the 35 year old would have to increase his contributions to £803 a month to achieve the same potential returns.

You may well feel that retirement is a long way off. But if you look at it in terms of how many ‘pay days’ until retirement you will see that it is not very far away after all!

Assuming retirement at 60 and mortality at 85…

ii) There’s always the state pension…

Are you continuing to pay contributions to your state scheme while living abroad?

NO? - this could reduce or wipe out your entitlement.

YES? - any pension that the state pays is almost certainly not going to keep you in the kind of lifestyle that you will want in retirement.

State pensions may not even exist when you reach retirement age, and the age of retirement for state pension entitlement will most certainly rise.

Most state pension schemes are not funded, meaning that the state pensions paid out this month are paid from money collected by the Government this month.

Over the coming years the workforce worldwide will get smaller and at the same time we are set to live longer - therefore there will be fewer workers to fund an increasing number of state pensions.

What if future governments reduce or stop state retirement benefit? What will you do then? Do you really want to be dependant on the state?

Surely the ONLY person you can truly rely on is yourself.

iii) As a married woman my husband’s pension will provide for my retirement…

It’s a hard and bitter fact to accept: but in the west one marriage in two ends in divorce, and one second marriage in two ends in divorce. So how do you know that your husband will be there to look after you?

Isn’t it naïve to the point of foolishness not to accept a women’s right for financial independence – especially in this day and age and especially in retirement? That said, only about 20% of all women receive an adequate pension, therefore many are approaching retirement without financial security. When you consider that a woman's earnings tend to be less than a man's, this means that they will have potentially lower pension benefits as well. On top of that, up to 50% of working women don't have a company pension plan and still depend on their husband to support them in retirement.

A woman is currently less likely than a man to receive an adequate pension; therefore they can be exposed to a greater risk of not having enough money to live comfortably in retirement. And as women on average live longer than men do, so they often have to survive longer on less money.

So ladies, don’t be indifferent to your plight! No-one will do it for you.

NOT-SO-POPULAR RETIREMENT FACTS

At the state retirement age of 65 the average man will have some 19 more years to live and the average woman, 22 years. You will have to support yourself without work and, very likely, without state income. This means that you will spend 25% to 30% of your life in retirement. You will need substantial sums of money to support yourself in retirement in the manner to which you will have become accustomed throughout your life to date.

Recent figures show that individuals aged between 25 and 44 are saving 1/3rd of the amount they should be saving in order to support their current lifestyle in retirement. In most countries you are forced to make your own pension provision if you want to have any chance of a comfortable retirement. The value of the UK government pension that you could once rely on is diminishing every year.

And last but by no means least: -

The graphic story of 100 young people now aged 25…and where they will be 40 years later at retirement;….

Of those who live to retirement, 93% will be depending on friends, relatives and charity. WHERE WILL YOU BE?

 ARE YOU READY TO START PLANNING?

As an expatriate you are in a more privileged position than most – chances are, you’re enjoying a higher salary and extra benefits as a result of working away from home. Furthermore expatriates have greater freedom when it comes to making investment decisions: they are not necessarily restricted by the same regulations that domestic investors experience. If you already had a domestic pension plan in place prior to working offshore, you may find that it is not as mobile as you are; and switching from plan to plan as you change from country to country doesn't make sense. It can mean that the income you end up with in later life is fragmented and may be whittled away by foreign exchange costs, charges or even a cash-strapped government!

Sometimes, an international company will offer a pension plan to expatriate employees as part of their benefits package, but unfortunately this is nowhere near as common as it used to be and therefore the onus is on you to provide for your own retirement.

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DECISIONS THAT NEED TO BE MADE

The most sensible solution would seem to be finding a safe harbour to anchor your retirement investments so that you can move from country to country as necessary without this having any negative impact on your assets.

However, if you decide to do this you need to decide exactly where that safe harbour should be. Offshore financial centres present a viable solution - especially if you are undecided as to your eventual retirement destination. Basing your pension investment offshore should mean that future movements of capital or income are not impeded. However you should remember that any retirement income you take could be liable for taxation depending on where you are living at that time.

Be aware that your own circumstances are unique. Be realistic about how much you should be contributing…IS IT AFFORDABLE?

A good offshore retirement plan should allow you to do the following without penalty:  

How to FIND THE RIGHT SOLUTION

Finding out what each provider's best products are currently, and then hand picking the best to suit your own personal needs and current circumstances is the best idea! But, in practice, how impractical!

Do you have the time to do this?

Would you consider yourself an expert in offshore investments and pension planning?

Where would you start?

Obviously professional advice will get you the right solution and save you time and money and reduce your cost of delay significantly!

SURRENDERING AN EXISTING PLAN.

Cashing in a UK or onshore pension is rarely the best option available to you.

If you have taken out an offshore pension policy and you are unhappy with it or want to take a break from paying into it, consider all the options that are available to you before you decide on your plan of action.

1. Instead of encashment could you take a payment holiday?
2. Instead of encashment could you change your investment focus?
3. Instead of encashment you HAVE to speak to a brokerage to find out what options are available to you and which options are BEST for you.
4. You can choose to vary your contribution instead of just stopping it.

You do not have to speak to the adviser or brokerage who set up the initial policy for advice – a good ‘independent financial adviser’ will be happy to assist you with any previous policies or investments that you may have. Beware that this is not free and ask WHAT COMMISSION YOUR ADVISOR receives.

BE INFORMED

If you haven't started your retirement planning or you want to check whether you need to do more or you want to find out what you can do with policies already in existence – from company pensions, personal pensions and offshore pensions - you need to act now! As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can.

 Find the right company to advise you about exactly what is available in the market place today and to get the best solution in place for you sooner rather than later!