RETIREMENT PLANNING? I AM STILL YOUNG
When it comes to retirement planning, a significant majority of expats tend to take a rather cavalier disregard about saving for what can seem like a distant, if not imaginary event.
The majority of expats here tend to adopt a cavalier approach about savings to lead their post-retirement life without any financial worries.
The current population generally is fitter and healthier than ever before and has the potential to work long into their 60s. There is also a widespread disinclination to save for the long term so the problem of retirement provision for international workers inevitably escalates.
Hence, it is the sole responsibility of an expat worker to provide for his or her retirement. No-one is going to do it for them. A failure to save during what is probably the most productive and financially rewarding period in any career, means inevitably that a bleak lifestyle awaits you in retirement.
In Qatar, it is the norm for expats to earn a tax-free salary and receive an end of service benefit, equivalent to a lump sum payout of one month's salary for each year of employment. However, it is extremely unusual for employers to make any sort of provision towards an employee's pension plan. It is therefore absolutely essential to set aside a portion of income from the very outset of any employment contract – no matter what your age, no matter what your circumstances.
The good news is, that by planning early, you will not necessarily have to forfeit very much and regular and long term saving will not make a noticeable dent in your lifestyle. The key to all of this is to take advantage of the myriad regular savings, pensions and investment products which are specifically designed for the international market.
Assess pension size
The obvious first step is to assess the size of pension you think you would require to maintain your desired lifestyle in later years, while at the same time, taking into account taxation and inflation considerations.
In order to illustrate this, let's take the example of a 35-year-old expat who wishes to receive the equivalent of £30,000 (QR186,900) per annum at retirement. He or she should anticipate that this amount will initially require to grow by 3% each year, prior to retirement, in order to at the very least keep pace with inflation, and maintain its purchasing power. If our expat plans to retire at 60, without compounding inflation, he must add 75% to this figure. The equivalent sum he would require would then be £52,500 (QR327,025).
Assuming tax of, for example, 20% on this annual income, the gross amount would need to be £63,000 (QR392,490). A typical retirement of 20 years would therefore require a multiplying factor of 20 on the £63,000 (QR392,490), which would then result in a target pension pot of £1,260,000 (QR7,849,800).
The second step is to work out how this sum can practically be achieved, by saving over the available timeframe (with a realistic annual growth rate of say 6%).
It is important that you assess what assets, savings and pensions you currently hold. You may have a number of company schemes already built up from working in your home country, or have a property portfolio which could then be sold or utilised to pay out an income from rents. While these should all be taken into account, do not fall into the trap of basing your hopes for retirement solely on either, as this can be risky and much too speculative.
In conjunction with other assets, the most reliable way to take control over future pension provision is to apportion a comfortable amount of any surplus income each month and invest in a flexible, long-term investment plan. This diversifies your savings across a range of geographies and asset classes such as equities, property, alternative investments, bonds and commodities.
This method of saving for retirement can not only be managed in line with your own risk profile and changing circumstances, it offers a better way of making sure your savings are not eaten away by inflation. It also helps avoid the need to boost retirement
“By planning early, you will not necessarily have to forfeit very much and regular and long term saving will not make a noticeable dent in your lifestyle. The key to all of this is to take advantage of the myriad regular savings, pensions and investment products which are specifically designed for the international market.”
plan shortfalls, often when you can least afford to.
Look for options
So what type of suitable retirement plans are on offer for today's expat?
One of the most efficient vehicles is a long term investment plan which qualifies as a life assurance policy. These plans offer expats a high degree of control and flexibility. As well as offering a wide range of investment options, in the eyes of the vast majority of tax authorities, they are treated as non-declarable entities for income tax purposes, until such time as what is called a “taxable event” occurs – this is most commonly when the plan holder withdraws funds.
It is also worth noting that such plans only incur income tax based on the amount withdrawn each year and in the jurisdiction in which you are tax resident at the time of withdrawal – typically the jurisdiction you retire to.
Further considerations include choosing a plan which is flexible. The large majority of investment plans will have an Initial Contribution Period (ICP) which must be paid. After this time, changes can be made to the level of contributions. A “payment holiday” is also favourable. This is advantageous if you are between employment contracts and are thus unburdened by payments during this time.
Finally, ensure that your chosen plan is geographically portable, in that you can continue paying in while living and working in various locations and that it is also placed with a custodian based in a safe, secure international jurisdiction, such as the Isle of Man.
Most of us will retire at some stage and the earlier we put financial plans in place, the more comfortable that retirement can be made