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Overview Onshore Pensions Onshore Pensions are fine for those who are resident for tax purposes in the United Kingdom. You are not allowed to continue contributions to an onshore private pension when resident overseas, so if you are doing so - stop now. This is because tax relief is applied to onshore pensions - if you are not paying it in the first instance, how can you qualify for tax relief! Onshore Company Pension Schemes on the other hand are allowed some leeway by the Inland Revenue. You can remain part of your Company Scheme and continue contributions whether voluntary or not whilst overseas. You can also take advantage of your Annual Voluntary Contribution allowance too if you wish. Any non-contributory perk your Company provides whether in additional funds, bonuses, protection benefits or share options should be exploited to the fullest. However, if you are in a final salary scheme you should be aware that many are currently under review since they place too much of a financial burden on the Company as retired ex-employees are living longer nowadays. Most firms nowadays are opting for a defined contribution scheme or sometimes called money purchase, which requires more input from the employee to build up a sizeable retirement fund. Typically an employee would need to save 12% of their salary to enjoy the same benefits of a final salary scheme. Examples of companies who have scrapped their final salary scheme are Astra Zeneca, BT, Barclays, Sainsbury, Lloyds and Boots to name but a few - there are certainly more to come! The biggest issue with onshore pensions is that you can never get your hands on the money until your pension age. And at pension age you are only allowed 25% as a tax-free lump sum (and this too is under threat! (see our Times article)) and the remainder is your pension for life. You are encouraged to buy an annuity with the remainder (compulsory at 75) to provide income until you die. When you die so does your pension and all the years of saving are lost eventually back to the pockets of the Inland Revenue. Some company schemes will provide limited widows benefits but certainly nothing will be passed to the estate for family or similar beneficiaries to enjoy well after your long years of hard work and saving. If you had thought about gifting this asset to grandchildren for school fees or similar - it will not happen. If you are resident for taxes in the United Kingdom you have very little to cheer about with regards to pension planning, however, if you are overseas the situation is quite different. Offshore Pensions By dint of their name, such pensions are not restricted by tax implications or retirement parameters you typically find in taxable jurisdictions. Contributions can be made into your offshore pension free of tax as long as you remain in a tax efficient jurisdiction like the United Arab Emirates for example. Moreover, the returns are virtually free of tax and hence the opportunity for growth is better offshore. As long as you are offshore the pension can be as well so the portability factor is great when maintaining a disciplined and constant approach to your pension contributions. You can select a retirement date that suits you and depending on your tax status at retirement you can elect to take your entire pension fund immediately if required. Most will draw an income at retirement and, unlike onshore pensions, will pass on the remaining funds to their spouse, children or whoever in the event of their demise. Some Companies do employ a Corporate Benefits Package, which may include a Company Pension Scheme. Most companies in the United Arab Emirates are still opting for the minimum gratuity entitlement, but this is soon to be relinquished due to the numerous inherent complications. Similarly, if we were to assume that you have been employed in a Company in the United Arab Emirates for 15 years, your first years Gratuity entitlement has made no growth (not even deposit rate!) for the remaining 14 years you have worked. Just think what that could have yielded over the same period in some Managed Pension Fund. This is a great scheme for Companies but not necessarily for employees hence the move to Gratuity Replacement Schemes (Corporate Pension Schemes) to attract and retain key staff members. So the offshore pension solution offers greater flexibility, tax-free growth and the ability to pass on the asset after your death. Can I keep my United Kingdom pension going while I am overseas? No. unless it is a Company sponsored scheme with whom you presently work. Can I pull the money out of my onshore pension early? No. There have been numerous schemes that claim it can be done but to date none have managed to achieve this with the full authorization of the Inland Revenue. Moreover, it is unlikely to happen either since the Revenue is looking forward to retaining your pension fund. Some Corporate Schemes may offer some commutation of pension rights, which should be considered very carefully before accepting. Can I transfer it overseas? No. Once again many have tried but it is not possible legally for the reasons above. When I die, can I pass the benefits of my offshore pension to my estate? Yes. It is an asset like any other and will remain so until you pass it on or it is all spent. Can I put my offshore pension in Trust? Yes. We suggest that it is financially prudent to place all of your assets in Trust. This does not cost much and on many occasions we can arrange a Trust for you free of charge. It could, however, save you a fortune when protecting your estate against unfriendly taxation authorities. We have an FAQ on Trusts on request and access to specialist Trust services for more complex financial solutions. Can I get an offshore pension in € or $? Yes. We encourage investors who intend to retire in Europe a € denominated pension (UK could be € by the time you retire!) and there are still some qualifying policies available for certain European jurisdictions which allow investors to take income free of tax. Can I link an offshore pension to an offshore bank account? Yes. You can have the proceeds of your offshore pension remitted to your offshore deposit account that can be accessed from any ATM around the world. Can I take an offshore pension back to the United Kingdom? Yes. You should seek some financial planning advice prior to your return to discuss the tax implications and how best to mitigate your exposure. You may have a qualifying policy which is treated differently for tax purposes and other onshore investments that could complement your overall portfolio. What if I go back abroad again? Take it with you and continue topping it up with tax-free contributions. An offshore pension can operate onshore and offshore whereas an onshore one only works onshore. How much should I contribute? We have a saying, there are basically two types of Pension - big ones or small ones, which one would you prefer? You will only get out what you put in but when planning your finances make sure you select a level of saving that suits your budget now since you can always increase the amount later. Nobody invests enough towards their long-term objectives but be mindful not to over extend your savings and have enough cash to meet unexpected expenses.
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