Towards a smart expat retirement plan

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Published 2019-09-30 15:21

Whereas a retirement plan should be a concern for every adult who wishes to spend their golden years in relative comfort, expats have a lot more to organise when it comes to their pension. Precisely, if you have been living and working abroad for many years, you cannot rely on what your home country’s national pension scheme has to offer. To make things clearer and your expat life easier, we have put together some insightful information about retirement planning when working outside your home country.

Maria Iotova

I'm a freelance journalist and editor for the travel, non-profit, and news sectors. After intensively exploring my home country of Greece and the UK as a journalism graduate, I have lived in Ghana, South Korea, Mauritius, and currently in Rwanda doing what I love the most: getting out of my comfort zone.

What to watch out for 

Does your home country have social security deals with the expat countries you have or are working in? If the answer is yes, then it is much easier to transfer your contributions to your home country. However, if there are no arrangements between your home country and expat country, then you may not be able to access these funds unless you retire in the country you worked in — which might be impossible, especially if you are a serial expat. Note that even if you can transfer the funds from your expat country to your home country, you may have to face the reality of hefty taxes and bank transfer charges. 

Working expats tend to enjoy opulent expat packages, including bonuses and company retirement plans. However, before you jump for joy, enquire whether these premiums are transferable in the future, and consider the exchange rates upon transfer. If you are planning to be a long term expat in one particular destination, learn in advance as much as possible about the country’s state pension systems in-store, and your company’s pension plans. 

The most common issue

Throughout their working lives, expat employees may end up contributing to three or four social security systems around the world, as well as to many company pensions. However, all these contributions tend to be short term — the result of short contracts and a couple of years only in each country. In this case, pension plans never actually materialise, and the money towards retirement may never bring fruits. In the end, it is very easy to lose track of the pensions accumulated in different countries, and often you have no clue how to access these resources.  

Multi-European state pension

If you have worked in more than one EU countries and it is time to get your pension, you have to apply to the authority in the country where you last worked in. They will process your claim and gather records of your contributions from all the countries you worked in during your expat life. Nevertheless, bear in mind that the retirement age across the EU varies from one country to another. Therefore, you can only start receiving your pension from the country you last worked in once you have met the country’s retirement requirements, including the retirement age. Similarly, if you are claiming funds from more than one EU countries, you will only receive the parts of your pension from each one once you have reached the retirement age of the respective country. 

The minimum period you must have worked to be entitled to a pension varies from one EU country to another. In this case, the pension authority takes into account all the periods you have worked in the EU — a rule known as the principle of aggregation of periods. For example, if you spent four years working in Germany where the minimum working period to receive a pension is five years, and you have worked for 25 years in Portugal, then the German pension authority will take into account the years you worked in Portugal too and will pay you a pension for four years worked in Germany. 

Now think of a different situation: You are retiring in your home country of France after working for many years in different EU countries, including France. In this case, you won’t receive a French pension only. Instead, you will receive a separate pension from each country where you worked for at least a year, and the amount from each country will depend on the length of your social security coverage there.

Note that the above information is valid for state pensions only and not company pensions. However, companies introduce pan-European pension funds for their employees in a central administration EU country, which most often is Luxembourg, Belgium, or Switzerland due to tax advantages. 

Offshore pension plans

Not all expats are familiar with offshore pension plans, but they are gaining more and more popularity due to their portable nature. The idea is that no matter how much you move around the world for work, your pension funds will be virtually following you while remaining at one geographical location. 

But what does this mean in practice? Every month, you contribute to your offshore retirement plan, in the currency that you want. Also, the pension plan is in a tax-neutral area, meaning that it is up to you when and where you will pay your taxes on the funds. Usually, you pay taxes in the country you are tax resident in (which is not necessarily the country of your nationality). 
Companies that offer offshore pension plans advertise as one of the most significant benefits of such schemes the freedom to access your funds whenever you wish. So, not only you can withdraw as much of the assets you want, but also at an age as low as 50. However, note that things are not always as good as they sound, and there is much small print to take into account before committing to an offshore pension plan. For example, private financial advisory companies may charge extremely high service costs and commissions. 

As an expat, your vision of the future might be only focusing on the next few years. Moving from one destination to another makes saving difficult, let alone managing a retirement plan. Probably, you never think you will be in a country long enough to start putting money aside for pensions. Also, there is so much to navigate in the present (e.g., immigration, work ethics, social life, etc.) when moving to a new country which leaves you with very little time to think thoroughly about the distant future. We hope that after reading this article, you have some of the answers to your questions regarding expat retirement plans, and start saving today for a self-sustainable tomorrow.