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A growing number of expats are retirees – those who have finished working and are now looking forward to a new life abroad. However, for some people retirement can be difficult, especially those who have no private pension(s) and must rely solely on a state pension to get by.

Planning for a retirement income involves taking a number of things into consideration. Firstly, your family commitments – will you still have dependents when you retire? What level of support will they require? The income tax rate of the country you choose to move to will also have an impact on the amount of income you require to maintain your desired standard of living. Retirement planning also needs to take into account your property situation - will you already own a home in the country you want to move to when you retire or will you need to use a lump sum to fund a purchase?

What is clear is that the sooner you plan for your retirement the easier it will be and the more funds you will have at your disposal. Planning your retirement when you reach the age of 45 is unlikely to be practical if you would like to retire when you are 55. The earlier you start saving and the later you retire should ensure that you have a more substantial fund to fall back on when you finish working.

State Pensions

Making social security contributions in your country of origin you should ensure that you are entitled to some form of old age pension when you retire from work. However, note that if you move abroad, you will not be able to claim this money until you reach the retirement age of the country where the contributions were paid. The amount to which you are entitled will also vary according to your personal circumstances and the contributions that you have made over the years.

Most countries have a minimum level of contributions that need to be made before a state pension can be claimed. It may be possible for you to make contributions to your state pension at home even if you are working abroad, so you can still add to your pension fund although you are not in the country. The amount and the period for which you can make these extra contributions may be limited, so it is a good idea to seek advice from your local pensions office. This can also cause problems if you are planning to work abroad for a long time prior to your retirement, as it means that the amount you can pay in will be limited and you may only be able to expect a fairly small pension in return.

The pensions department of your government will be able to advise if a state pension can be paid directly to you while you are living abroad. In some countries there are agreements in place which allow pensions to be paid directly to the retiree, or a cheque can be sent directly from the country of origin to the recipient. Retirees who choose this method should be aware that cheques issued in a foreign country can take up to several weeks to clear. If your home country is unable to pay your pension to you abroad directly you may still be able to have it paid into a bank account back home so that you can arrange for the funds to be transferred overseas yourself, although you are likely to incur bank charges for doing so.

It is unlikely that any expat worker will be entitled to a state pension from the country that they have been working in unless they have permanent residency status and have been there for many years, making the necessary contributions into the social security system. There are some countries that will allow this, although a growing number are limiting the access that expats have to their social security systems. The Gulf States in the Middle East, for example, will not allow a worker to remain if they are not actually working so that foreign nationals do not become a burden on the state.

Private Pensions

Some people who work have a private pension scheme, usually arranged via their employer and where both the employee and the employer make contributions to the scheme. If a worker leaves a job these schemes can be frozen or the individual can continue to pay money in and build up the pension fund further. When a worker chooses to move abroad, making payments to one of these schemes may no longer be possible, often depending on whether or not the employee is still working for an employer from their country of origin.

As with state pensions, claiming your money directly when you have retired abroad can be difficult if the private pension scheme does not make payments to people outside of their country of origin. As a result, it is a good idea to keep your existing bank account at home so that pension payments can be paid in and then transferred abroad when you need them.

How the money is paid is usually up to the recipient. Most providers will allow recipients to take the money as a lump sum or a monthly or annual payment (sometimes a combination of the two is possible). When deciding which option is best you will need to take into consideration tax implications and your liefstyle requirements of your lifestyle. Once again, the advice of a trusted financial professional with specific expertise in this area is recommended.

New regulations are now in effect in the European Union which ensure that EU citizens who move countries are still allowed to make contributions and receive payments if they are in one of the other EU member states, the idea being to make it easier for workers to change jobs and move abroad if they wish.

If you choose to leave your home country to go work for an international corporation you may be offered the chance to join their pension scheme. This is less often the case now than previously, particularly with younger employees, as most companies no longer consider it cost effective. If that is the case the employee will need to find their own pension scheme to act as an add-on to any state pension to which they are entitled.

UK Pensions

If you are receiving, or planning to receive, a UK pension then these quick facts may prove useful. It is, though, aimed only at those who have pension fund savings in a UK based scheme.

- You should be able to receive your state and/or private pension payments directly into your expat bank account overseas without penalty.

- At the age of 55 you may be able to take up to 25% of your private pension savings out as a tax-free sum.

- Currently under UK laws, you cannot freely access your pension in total without severe taxation penalties.

- When working you can make additional payments into both the state and your private or occupational pensions.

- You can, under 2006 QROPS legislation, move your pension funds overseas to your new country of residence or a third country (see following section for further details).

- Under most UK pension schemes, even if taking a 25% early withdrawal at age 55, a male will need to live to around 75 or older before they will have recovered in regular pension income what they have paid in over the years.

- Your ability to pass on to your family any surplus amounts in your scheme after your death may be very limited - check with your scheme’s administrators for details.

- Getting pension income in one currency while living in a different country can sometimes be advantageous but equally can also be problematic if currency exchange rates are unfavourable..

- Pension funds in any country can at times prove vulnerable to market forces or illegal activities as some UK and other international cases have shown. Be careful before you choose your scheme and always see what state or association guarantees are in place to cover any unforeseen eventualities.

US Pensions

If you have worked in the United States it is likely that you have paid into a US pension account such as an IRA (Individual Retirement Account) or a 401k (an occupational pension plan). The question arises as to what should be done with such an account once you give up US residency.

There are three alternatives: You can transfer it to another pension account, you can distribute the money, or you can leave it in the current account.

In an ideal world you would have complete cross-border portability for your US pension account such that you could transfer the funds without tax consequences to an equivalent account in your new country of residency. Unfortunately US tax regulations typically do not allow such transfers. While you can sometimes transfer from one type of US plan to another without tax consequences (such as from a 401k to an IRA), it is usually not possible to transfer from a US plan to a non-US plan; with the possible exception of some specially structured corporate pension plans. A transfer from a US pension plan to a non-US plan would typically be deemed a distribution for US tax purposes.

This brings us to the second option: You could distribute the funds in your US pension plan and do what you like with the proceeds. US pension plans are quite flexible in terms of allowing access to one’s funds, unlike pension accounts in many other countries that may allow only limited lump-sum withdrawals with the remaining funds used to purchase an annuity or available only to be drawn down over the account-holder’s lifetime. You can access any or all of the funds in a US IRA at any time. If you have a 401k account from a former employer, this can be transferred to an IRA (“rolled over” in the vernacular), whereupon the funds can be accessed as above. Other types of US plans, such as deferred compensation plans or defined benefit plans are less flexible.

The downside of distributing the funds in your pension plan are that you lose the tax-deferral benefits, which may be substantial over time, and the distributed funds may be subject to taxes and possibly penalties for early withdrawal if you are under age 59 ½.

The third option is to leave the account as is, to be accessed as the need arises in retirement or otherwise, once early withdrawal penalties no longer apply. This is the best option for many people but the issue that non-US residents often face is that their US pension plan administrator may not be willing to deal with them now that they no longer live in the United States. Many brokerage firms will insist that you close your account once you no longer have a US address; or they may allow you to retain the account but will not allow management of the investments – in effect freezing your pension. If you are facing such a situation, you should know that there are a few firms that specialize in cross-border issues and can accommodate you.

Apart from the administrative issues faced by leaving the account as is, another concern may be currency risk. Typically US pension accounts are invested mostly in US Dollar denominated investments, but if you reside outside the US you may eventually spend the funds in another currency. This can introduce significant currency risk in addition to the investment risk you may already be assuming. For example, someone with a US-based retirement account who moved to Europe ten years ago and is now contemplating spending his US Dollar denominated pension account in Euros would find that the USD has weakened by over 30% against the Euro over this time period, resulting in a 30% loss in purchasing power for him. If the money was to be spent in Canadian Dollars it would be almost a 40% loss and in Australian Dollars it would be over a 50% loss.

Clearly it is important to consider currency risk if you may eventually be spending your pension funds in a currency different from that in which they are invested. Many US brokerage firms and investment advisors do not consider this and maintain only a minimal allocation to non-US investments. Also, typically pension accounts such as 401ks only offer very limited non-US investment options so it may be to your benefit to terminate such plans once you are no longer a US resident and move the money to an IRA where it can be better diversified globally.


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