Pensions and expats
Retirement plan and expats remind of oil and water, they just don't mix. But if you work on it you can make then stick together in an emulsion. An issue that is not to be left last. Take the matter in your hands and plan it.If you think of reading this text to find a solution to your expat pension's problem, we are sorry to disappoint you: there aren't any at the moment. The scope is to make you aware of the issue, to give you a snapshot of the situation and some suggestions on how to address the segmentation and defragmentation of a retirement plan resulting from an expatriate career.
- Expatriation is no longer limited to multinational companies, more and more small enterprises need to compete on the international arena, achieved by setting up offices and factories abroad or by acquisitions of local businesses. This brings forth the need to have a "corporate glue" of the various pieces, delivering a "corporate identity" which is represented by the expatriates.
- According to both HR
professionals and top management, there are no doubts
strategic significance of expatriate in the business, whatever sector of
the economy we talk about, but expatriating people is becoming more
difficult. In fact, the economic scenario of the new millennium, has
brought forth the need of cutting costs down, which had not helped, as well
as higher numbers of dual career couples.
As a result, packages are less enticing today than they were 20 years ago, and expatriates have less and less reasons to take a sting abroad, which range from being penalized regarding retirement, to the fact that when a transfer is on the horizon one of the two partners has to give up his/her job (and salary!) and follow suit (corporates have still not brought any creative solution to the dual career issue).
- Work is being done to
resolve these thorny issues of expatriation and pressure is exercised by
corporates on goverments to make it easy to transfer
personnel. The world has become smaller when it comes to cross borders
to change job, but has not become any easier accumulating retirement
savings or work in another country.
Companies have a problem where expats have a problem, so in terms of spouse needs and dual career issues there has been lobbying of companies to ask governments to issue work permit to trailing spouses.
- On the issue of
pensions instead the matter has not progressed significantly.
In some instances there is some work in progress, like the European Union plans to create a pan-European pension scheme, whose first step, a directive on pension funds, should be approved allowing insurances and pension funds to offer their services across the borders.These initiatives though have touched the raw nerve of the problem, without harmonization of tax regulations, it cannot happen (today in the Euroean Union, based on which countries are involved, a pension could be taxed once, twice or not taxed at all).
- Companies try to reduce financial exposures and investment risks in the benefit plans (to do so they need to properly assess required pension funding), while maximizing the effectiveness of compensation and benefit programs around the world. Most of all, companies strive to be able to develop an international transfer policy that meets current and projected mobility needs, yet, despite years of expatriation, no company today has valued solutions to expatriate retirement plans.
- So if you thought that
compensation and benefit is a subject for Human Resources only, think
After you have moved around the world and paid into various local and international pension funds you are may well be entitled to ask yourself:
"what benefits do I have from mobility?" " Can I manage to bring the various contributions under one single pension fund?" "Is the company that moves me around the world providing me any help in this?"
- The benefits for moving with your family around the world may be many for a vast array of reasons, but when it comes to looking at the long term picture, the retirement advantages - when compared to the people that stay put in one country accruing their benefits under one single jurisdiction - seem to disappear (sit down and do the accounting). If you have worked for the same company you might have your savings protected through the organisation's pension scheme, but this does not include the local pension funds you paid in each country; if you have worked for different companies in different countries, you may well end up with less than an individual who stayed with the same company.
- Pensions as they stand, are already not easy to understand for any employee, add to this may be a hop in one or two companies, together with a change of few countries over a period of few years and you could be in for nasty surprises when the truth is finally revealed.
- Currently, even when it is possible between certain countries (thanks to reciprocal agreements), defragmenting pension funds it is complicated and difficult, but in most cases is downright impossible, simply you lose what you have paid, and without any exceptions companies do not pitch in to help either.
- An employer may offer
to help prepare the employee for retirement, but it is ultimately up to the
individual to manage their retirement planning. So it is up to you!
Take the matter in your hand and see what you can do to understand how the portions of funds can be collected under one plan. Companies very rarely volunteer to do so, even when the employee has worked for them all along in different countries.
- What can you do to obtain the maximun benefits you should be entitled to by your contributions?
- The first step is NOT to leave it to when you retire. Get ready to do the detective work in each jusrisdiction to find out what are the rules and if there are any reciprocal agreement that would allow you to claim the pension funds.
- The ability to transfer schemes across borders depends on whether there is in existence a bilateral treaty on social security between the home and host country. (TIP: Verify where you stand regarding your retirement while you are in the foreign country! Ask the embassy, the HR departments, a trustworthy tax consultants and employment commissions, to receive assistance in understanding the specifics of your situation)
Interesting reads for British Expats
Article on The Sunday Times 14 October 2006
Article on The Guardian 16 March 2010
Article on BBC news 17 March 2010
US Pension System
Artcile on ArticleSnatch.com