For the globally mobile, making retirement plans can be tricky. It’s one thing to work all your life in a company in the UK, accruing pension that pays out a predictable amount at an expected time. It’s quite another to try to put the same arrangement together if you’re working outside your home country, perhaps across different locations, and you’re frequently on the move. Whether an executive or a contractor, pension provision is still an essential and this is where International Pension Plans (IPP’s) really come into their own. The major benefit of setting up an IPP is that it provides a single, centralised plan for anyone who is working outside of their home turf. So, why don’t more businesses use them?

 

Our thoughts are that businesses don’t understand how simple IPP’s can be. Perhaps because they are relevant to smaller demographics (although the numbers of globally mobile employees grow by the year), international retirement plans are often misunderstood. In fact, there are numerous unhelpful myths that have attached themselves to the IPP.

 

Is it worth it for a small business?

 

Actually, it is. Guernsey’s IPP’s are fantastically flexible and provide employees with a lot of benefits. For example, IPP’s allow employees to make regular and consistent contributions to a single plan and offer companies a way to provide an attractive benefits package that is simpler to run than numerous different plans. Employer sponsored plans always provide a better deal for expat employees so they can be a real incentive to join a business and stay loyal.

 

Is the cost too high?

 

Historically, this may well have been the case, as international retirement plans are often only required for a smaller number of employees so may have a more bespoke element. However, this has now changed. Although IPP’s remain more expensive than a standard local pension plan, the cost of introducing them to a business with expat employees has fallen thanks to factors such as admin and investment automation and innovations such as multi-employer master trust solutions that are specifically designed for smaller numbers. Plus, if you’re losing good staff as a result of not being able to offer IPP’s when competitors are, this will also impact your bottom line.

 

Are there no tax benefits?

 

It’s important to make the distinction between tax advantaged and tax efficient when it comes to International Pension Plans. The IPP is frequently discounted because of a lack of up front tax relief but whether this is really of importance depends on the countries where someone is working when the benefit accrued – if these are low tax countries it doesn’t make much difference. The key benefit of an IPP is that it provides tax-free growth. It’s also possible to reduce income tax payments by making smart choices about when the IPP benefit is withdrawn.

 

Do we have to set up and manage a trust?

 

For some reason, many employers are put off the IPP as soon as they realise that it is most often set up as a trust in a tax neutral location such as Guernsey.  In fact, trusts make it simple to ring fence assets, govern and administer benefits and there are many more solutions now to a business setting up a single stand alone trust for which they have the responsibility. The growth and evolution of master trust solutions provides a very straight forward way for companies to provide international retirement plans for employees, no matter how small the numbers. And, although they may be a little less flexible than a standalone trust, they are also a completely different story when it comes to costs – much more affordable.

 

Are other, or better, options available?

 

In fact, there aren’t that many other options available and those that exist are fairly limited – hence the recent growth in International Pension Plans among the globally mobile. Home and host plans are often cited as a good alternative to an IPP, as well as paying cash to an expat employee instead of providing them with a pension. These options create a myriad of issues for a business and are considerably less appealing for the employee. Host country plans are subject to currency volatility, for example, and retention in home plans throws up the issue of the creation of a cross-border scheme. Paying cash instead of a pension falls down on social responsibility and won’t be a particularly attractive prospect for highflying talent.

 

While International Pension Plans may not have been an option in years gone by for companies with a globally mobile workforce, they are now a rather different beast. Simpler, more cost effective and an attractive benefit, they are fast becoming a key component in best practice handling of expat employees packages.