5 things you should consider when setting up an international company pension scheme.

These are also points to consider if you already have a scheme and need to review it.

Here are the 5 different topics that we'll cover with things you should know about International Company Pensions:

1. The Relevance of International Pensions for mobile key employees and executives

2. Why companies need to look at these schemes now

3. How International Pension Schemes help companies better recruit & retain key staff

4. Ease of setting up and managing these schemes

5. Contributions & fund management

Let's take a look at them in more detail.

1. The Relevance of International Pensions for mobile key employees and executives

International Pensions are growing in popularity as it becomes harder for companies to administer retirement benefits packages for key employees, who live in different locations around the world.

Putting International employees into a ‘local scheme’ based for example in the EU, UK or other jurisdiction when they don’t live or work there is not the solution as it causes issues for the employee and the employer.

International Pensions are suitable for Managers, Directors, Lawyers, Engineers, Teachers, Technicians, IT professionals and also small business’s. An International pension is a way to reward and encourage loyalty with these categories of employees by providing transparent, cost effective and portable benefits for these staff.

Governments around the world are rapidly reducing pension benefits and any tax benefits these schemes used to get. This is due to the need to balance the debts they have from the global financial crisis and Covid.

An International Company Pension enables people who work abroad to now build up significant pension benefits which are not affected by these changes in government regulation. These changes are likely to mean going forward having an International Pension Scheme as opposed to one based in your home country will likely be more attractive for high earners as governments continue to increase taxes for this category of person.

In the majority of cases these International Pensions are based in countries where the growth of your pension and income you take from it is tax free. Dependent on where you are when you take benefits you may or may not pay tax, but these schemes give you more choice and flexibility around tax and taking benefits.

2. Why companies need to look at these schemes now

International Company Pensions are becoming more popular as people move around and companies locate people based on their experience and knowledge and the cost of doing business somewhere.

An International employee based in the Middle East or Asia or other expat location will not for instance want a pension based in for example Singapore or the UAE. This is not because the pension is no good but due to the fact these schemes are designed for their own citizens and potentially expats who retire there.

The market for ‘International Benefits’ is increasing enormously with the stand out locations currently being places like the Channel Islands and the Isle of Man which have a history of creating innovative products for the ‘International Client’.

These areas offer high levels of security and have high standards of quality backed up by regulation to support clients.

As governments in the US, UK, Europe and other jurisdictions increase taxes to pay back debt more and more ‘key workers’ who are well paid will look to take the opportunity to move away from their home country for a period of time to build up a Pension offshore. This will be done to make sure their work is rewarded and they will be able to enjoy a comfortable retirement as governments around the world tax local schemes more and more.

3. How International Pension Schemes help companies better recruit & retain key staff

As the world changes benefits that International employees used to get are being cut back. These can be seen even in places like Singapore where the government scheme which used to be offered to International employees has been stopped. These changes are logical and to be expected and put pressure on companies who move employees abroad to come up with their own solutions.

Setting up an International Retirement Benefits Package if you are a company with ‘key employees’ working all over the world has now become a lot simpler and easy to manage and is likely to be cheaper than your ‘home based scheme’.

With these packages tax is often not a consideration and it is just a choice of what category of employee you want to offer this package too and what will be the contribution details and the benefits.

International Pensions can also help companies attract and retain ‘key employees’ by providing a benefit package which encourages key staff to stay with the company. This has been done in the past and continues to be done by using vesting periods. A vesting period can be set by the company and ensures if an employee leaves early they will not get the full benefits of the scheme.

The benefit of these ‘International Schemes’ is that they are not only easy and cost effective to set up but can be ‘tailor made’ to meet the needs of different companies.

4. Ease of setting up and managing these schemes

International Pension schemes are simple and easy to set up and require almost no input from the company once they have been set up.

Employees will get access to their particular details through an ‘online system’ which will allow them to monitor the value of their plan and ask questions directly to the scheme administrators.

When a new employee becomes eligible for the scheme the company only needs to notify the ‘International Pension Provider’ who will then ‘onboard’ the new employee.

Questions that an employee may have about the scheme are handled by the scheme administrator and this includes when an employee leaves.

When an employee leaves dependent on the scheme rules which are agreed with the company when the scheme is launched, the employee will likely have the option to take the entire pension as cash.

The employee will also have the option to leave the scheme as it is, until retirement, when they can then decide if they want to take an income from the scheme, a lump sum payment or a combination of the two.

5. Contributions & fund management

For companies who have an International Pension Scheme contributions into these schemes are straightforward and require little administration. Generally one payment is made each month and then the scheme administrator then separates the monies and allocates them according to data provided by the company.

These schemes are also extremely flexible allowing the company to vary contribution levels each month as employee or employer contributions either increase or decrease and new members join or existing employees retire or leave.

In the past many pension schemes have performed poorly or not met the needs of either the member or the company. Invariably this is due to a restricted fund choice, high fund charges and the inability to change the fund manager as the world changes.

The biggest complaint for these past schemes is ‘poor fund performance’ which coupled with high charges meant these old schemes did not work.

Technology as we know has changed the world and significantly reduced charges and meant these schemes can now offer a far larger fund choice. This can include everything from simple and cheap tracker funds to managed funds and more focused funds.

Discussions would be had with the company during the implementation of the ‘International Pension Plan’ when it would be discussed and agreed as to what options the company would provide to employees.

An example of what would be the normal process would be for the ‘new member’ of the scheme to fill out a ‘risk profile questionnaire’ which would then be sent to the International Pension Provider. The ‘new member’ would then be provided with a recommended suggestion of funds based on his/her risk profile which would be actively managed during their time as a scheme member.

The member would also be able to access their ‘pension’ through an online portal which would provide details of their scheme including daily valuations and details of performance of the funds and other options.

International Pension Plans are becoming more popular and they can be set up for companies with as little as two members to as many as you want.

These schemes offer key employees significant & valuable benefits in helping them build up flexible retirement benefits.

An International Pension Plan helps a company recruit and retain key employees without the scheme taking up valuable time and resources to manage.

Members of these schemes are likely to be high earners who if they remain in their home country for the whole of their working life would see their pension benefits highly taxed and very restricted. An International Pension enables them while they work abroad to build up pension benefits which will likely reduce their tax burden when they go home and give them far greater flexibility and choice when taking benefits.

Like with most things in life setting up an International Pension Plan needs careful analysis and thought based on both the needs of the company and its employees.

What you NEED to consider:

  • Where should your International Plan be based and why

  • Security of the scheme and the benefits for employees

  • The nationality of the members and how this might affect where the plan should be based.

  • Scheme rules and details of contributions and any vesting rights.

  • Options when a member leaves

  • The amount of choice a member has with regard to ‘fund choice’ and taking benefits

When setting up these schemes it is important to work with an IFA who has experience in this market and understands the implications based on where members are likely to be working.

A lack of planning and understanding of markets where members will be based can cost the company significantly if the scheme does not fit in with local rules in a particular country. An International IFA will be able to highlight any potential issues.

The author is an International IFA , James Hartland, with significant cross border experience in the Middle East, Asia & Europe.