Last month I had the dubious pleasure of celebrating yet another birthday. It was not a "significant" anniversary – it didn't end with a zero, or even a five (which comes next year). I was delighted to receive the normal crop of good wishes – although as the years pass, I seem to receive fewer cards and far more electronic greetings. I did wonder whether it would be OK to print all the Facebook messages and put them up where the cards should go; I decided against it.
The celebrations were very jolly but somewhat overshadowed I thought when someone, albeit in a jocular fashion, said: "Another year closer to retirement, eh? I hope you've got your pension sorted."
Well, yes thanks, I do, more or less, but for someone whose next big "zero" birthday is 60 (although I hasten to add, not until the early Twenties) retirement planning is most relevant and something I think about far more than in days gone by. Many people my age and older say "it's too late for me" as if financial planning and good old fashioned common sense can be forgotten once 50 comes along. It is of course far better to start planning for your pension at 21 rather than 51; but it is never too late. You should at least review the options available to make sure that your retirement planning is geared to your personal circumstances.
For this piece – and in an effort to get away from the "Brexit" vote, Spanish elections and the like – I thought I might take another look at different types of pensions and, in particular, retirement planning for expatriates, whether they are living here in Gibraltar, across the border in Spain or indeed further afield.
Perhaps a good place to start is to highlight a form of pension that was very common until just a few years ago but is now becoming an endangered species. The ever-popular final salary scheme was highly sought after – and with good reason. In industry parlance, the pension paid from such arrangements is known as a "defined benefit". In its simplest form, a set proportion of a final salary is paid as a pension – depending on a number of factors including length of service. Many people of my generation who worked in companies such as banks continue to enjoy these benefits but the world has changed. Increasingly, individuals are encouraged to take responsibility for their financial future, which is admirable in theory but of course good advice must be sought at all times.
Pensions are for everyone – indeed obligatory in some countries (such as the UK) where new rules are being introduced that will force employers to ensure arrangements are set up for all employees. Here in Gibraltar there are several pension options available to both locals and those people who have moved here from the UK and other countries alike. In my case, I have spent almost all of my working life away from my island of birth, so I guess that makes me a serial expat. I was always advised to retain as much flexibility as possible when it comes to financial affairs and this is particularly important when considering retirement planning
Life as an expat is an adventure. It offers the potential to explore different places, different climates and different cultures, as well as the opportunity for unlikely friendships and extraordinary experiences. It can also be fragile and unpredictable. Even the best-laid plans can be turned on their head in an instant.
I wrote in a recent article of the collapse in the price of oil over the last couple of years. One of the less obvious side effects of this is that many energy workers working abroad have had to pack their bags and head back to the UK. Equally events at home, such as a parental illness, can bring a foreign posting to a sudden end.
It is this uncertainty that makes it vital to be flexible in your financial planning. An expat returning to the UK, or who is in transit to another overseas posting, has to be mindful of their options. Typical areas of focus should be the timing of their return and any associated tax implications. There may be an opportunity, where appropriate, to crystallise gains on certain assets before becoming UK resident again. It is also important to consider whether existing investments remain fit for purpose. Insurance-based products that are widely sold in expat markets may need adjusting or it may be appropriate to consider signing up to a retirement plan.
Many UK expats have chosen to transfer their UK pensions into overseas pension arrangements known as Qualifying Recognised Overseas Pension Schemes, or QROPS for short. A QROPS generally takes the form of a personal pension plan and typically it will be based in an international financial centre such as Gibraltar, Malta, or the Isle of Man.
This type of QROPS arrangement is typically referred to as a "third country" solution on the basis that the UK pension is transferred to a jurisdiction that is neither the holder's home domicile nor their current country of residence. In part, the efficiency of this solution will rely on the interaction between the QROPS' jurisdiction and the individual's country of residence at the time when they draw benefits from the plan.
So what happens when a UK pension has already been transferred to a QROPS but an expat decides, for career or personal reasons, that they must take up residence in the UK again? This is not a calamity because the UK authorities specifically anticipated this possibility when designing the QROPS framework. The QROPS can therefore remain in situ and would, when benefits are ultimately drawn, be taxed on a similar basis to a UK pension.
In some cases, however, a transfer to a UK-based solution, such as a new workplace pension scheme or a Self Invested Personal Pension (SIPP), may be more effective. This would apply, for instance, to a returning expat who intends to carry on working and wishes to make future tax relievable pension contributions as a UK resident. A QROPS could not accommodate this but a SIPP could. A SIPP may also offer cost efficiencies for some members over a QROPS.
Finally, there may be tax implications for an expat returning to the UK if pension withdrawals have already been made from a QROPS while the expat was resident overseas. This generally applies where the UK authorities consider that the period of residence overseas was only temporary – it did not exceed five complete and consecutive UK tax years. In this instance advice should be sought before getting on the plane.
The key for any expat considering their pension arrangements is to select a retirement provider that offers solutions across multiple jurisdictions. This will provide them with the flexibility to transfer their pension seamlessly from one jurisdiction to another – including the UK – should their plans change unexpectedly, whether this entails a move back to the UK or elsewhere in the world.
This can all be more than a little confusing. If, dear reader, I have confused you totally, at least you are in good company for no less an authority than Bank of England chief economist Andy Haldane recently said that he found pensions so complicated that even he didn't understand them. Confirmation, if any were needed, of the importance of good quality professional advice from the start.
So did I enjoy a good birthday? Yes indeed. And I didn't spend it checking on my pension but I will be reviewing my options shortly. It's always a good time do so because the only certainty in this world is that uncertainty will continue to prevail. Flexibility in retirement planning is key so, yes, birthdays and pensions are indeed related.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.