Mark Gaywood, director, Anglo Irish Bank (IoM), takes a look at pension planning, and recommends that it is something every IFA should think about when looking at a balanced portfolio for clients
Many IFAs spend so much time and energy servicing the short and medium-term needs of their clients that it is perhaps not surprising that long-term pension planning can be a bit of a Cinderella topic.
This is a pity because many clients - especially those working as expatriates or for multinational companies - face special challenges when it comes to pension provision. However, the good news is that, when it comes to pension planning, expats also have unique opportunities not available to everyone else.
Many IFAs know this, of course. They also understand that providing help and advice on pension planning can play an important role in cementing the overall relationship with a client, and in providing a truly comprehensive service.
At first glance, offering advice on pension provision can look a bit daunting. It is true that you need to know some basic facts, but it is mostly common sense, and working with the right partner company can make all the difference and make your life much easier.
Something is certainly stirring in the international pension world. At Anglo Irish Bank we have seen a surge in interest in international pension planning over the past 12 months - enough to know it is coming to the top of the agenda for many IFAs and their clients.
Several factors are driving this. Everyone is aware of the withdrawal of the state from truly adequate pension provision. The private sector is also changing fast - few people believe that final salary pension schemes will still be around in five or 10 years time. The writing is on the wall for pensions and individuals will need to look after themselves, or run the risk of spending their old age eating porridge and drinking weak tea.
It is perhaps especially difficult for expats. Most of them, by virtue of their job, forfeit the opportunity of contributing to an adequate state pension. Expats are also highly mobile, changing both job location and employer more often than other types of worker. The upside of course, is that they tend to be well paid. Equally true is the fact that they like to live well, and too many of them prefer to forget about the time when retirement beckons.
The good news is that the options for expat and multinational workers are much more varied and advantageous than for many other types of worker. In fact, when it comes to pension planning, expats - with a bit of help and advice - can take advantage of some highly favourable tax regimes, plus a considerable degree of flexibility on offer from a variety of companies and jurisdictions.
It varies from jurisdiction to jurisdiction of course, but in the Isle of Man there is a uniquely well-regulated and stable location for companies and individuals looking to establish an international corporate or individual personal pension plan. The Isle of Man is the only offshore financial centre with a dedicated body - The Isle of Man Insurance and Pensions Authority - which supervises the activities of pension schemes established for non-resident individuals, or businesses.
Some of the key advantages of basing pension provision on the island include the fact that there are no restrictions on the level of benefits, or age at which they are taken, from an international pension plan.
Significantly, there is normally no upper limit to the size of a pension fund or restrictions on the level, or frequency, of contributions.
Other benefits include the fact that the holder of an international personal plan can change jobs and/or jurisdiction and continue making contributions (provided they do not move to the Isle of Man).
In most cases, assets and investments can be held, or invested, in a very wide range of financial vehicles including: quoted shares, fixed interest securities, bank and building society deposits, unit trusts, insurance policies, unquoted securities, commercial property and loans.
While independent investment advice should always be taken in relation to all investments in a pension plan, a good scheme will also give the client an influence over the investment and disposal of eligible pension assets. An IFA can choose to be involved in this, as an adviser of the scheme.
Usually, the plan member can decide where in the world they are to retire, without their pension arrangements prejudicing, or unduly influencing, that decision.
Crucially, unlike in the UK, there is no mandatory requirement to purchase an annuity on retirement and, in most cases, pension funds can become part of a member's estate upon their death.
Taken together, the flexibility and tax advantages which apply to international pensions make them a 'must have' for any expat client.
CHOOSING THE RIGHT COMPANY
However, choosing which company to deal with is not always straightforward. When looking for a pension plan provider or administrator the only word to keep in mind is expertise - deal only with a company with an in-depth understanding, and hands on experience, of the international pensions market.
You and your client need to know that the assets and pension members' benefits are adequately secured, and professionally administered by a skilled and qualified pensions team.
Some companies require you to invest pension funds in investment vehicles or funds owned or controlled by them or an associate company. While this can have advantages, it can also mean that clients are limited to a narrow range of investment options, which might not be the best ones for them.
It is probably more advisable to chose a company which specialises solely in pension fund trusteeship, consultancy, design, and administration - giving you and your client the flexibility to choose the best investment portfolio to suit their particular needs and financial objectives.
Whatever partner you chose, it is undeniable that offering pension planning as part of a comprehensive service to clients is becoming more and more important for an increasing number of IFAs.
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From 6 April 2019