What is an International Pension Plan?
03 February 2021
An International Pension Plan helps multinational businesses provide attractive retirement benefits to elements of their international workforce.
International Pension Plans are particularly popular with companies who have employees who work abroad on international assignments or are employed on a globally mobile basis.
Employers with International Pension Plans can offer an advantageous pension scheme as part of an employee’s remuneration package, which is essential for attracting and retaining talent. An International Pension Plans also enables globally mobile employees to remain in the same pension scheme, even if they work in several countries throughout their career with the company.
In which cases might an International Pension Plans be appropriate for an employer?
While companies choose to set up an International Pension Plans for various reasons, there are a few common scenarios when an International Pension Plans is considered. The most common of these include:
- When an employee leaves their home country and they are unable to be retained in their ‘home country’ scheme.
- When multinational companies have growing numbers of ‘globally mobile’ employees. In some cases, participating in a local (or ‘host country’) pension plan is not a viable option because the new pension plan is not equivalent to the employees ‘home’ country, leaving them at a financial disadvantage. Employees increasingly expect employers to have a reliable solution for such a scenario.
- When an employee is hired by an international company in their native country, but that country doesn’t have a viable or appropriate pension plan that is comparable with the pension schemes that are in place for colleagues in other jurisdictions.
International Pension Plans also remove some of the burdens of determining how to give globally mobile employees a good pension package in companies where working overseas is common. Companies might regularly have employees move to work for them in one or more countries for an extended period. In these cases, an International Pension Plan means Human Resources staff don’t have to deal with or negotiate staff pension previsions on a case-by-case basis. An International Pension Plan can save time, costs and removes the burden of companies trying to untangle complex retirement legislation in countries where they have staff but where they may not have an HR presence.
Practically, employers want flexible International Pension Plans and the ability to design a scheme that can be tailored to meet their specific requirements in relation to contributions, when benefits become payable, vesting rules, retirement age and so on. Companies also want the ability for retirement benefits to be paid to employees as a lump if they wish, rather than being obliged to provide a payment or annuity. A jurisdiction’s ability to meet these criteria will often be the catalyst for where a company chooses to set up their International Pension Plan.
Why Guernsey for International Pension Plans?
Guernsey is an established centre of excellence for International Pension Plans and has almost 50 years’ experience in this field. Global surveys confirm that Guernsey is one of the most popular jurisdictions for establishing them.
Guernsey gives employers the desired flexibility for their International Pension Plans and is also beneficial from a tax perspective, given the investment returns of the pension fund can be rolled up free of tax and payments are made without Guernsey tax being deducted.
Guernsey has a modern and principles-based regulatory regime which conforms to international standards.
Guernsey offers many benefits for setting up an International Pension Plan, and these go far beyond tax considerations. The flexibility, yet security, that Guernsey’s regulatory framework provides is one of the most attractive reasons for setting one up here.
Specific features include:
- Different employers within the same multinational group being able to join the same plan
- No limits on the amount of employer or employee contributions
- Employer contribution rate flexibility, with differing contribution levels for specific categories of employees being able to be accommodated under the same plan
- No requirement to comply with EU ‘cross border’ restrictions or to be ‘fully funded’ at all times (in the case of defined benefit arrangements)
- Freedom of investment choice may be offered to members
- No income tax or capital gains tax payable on the assets within the plan
- No limits to the value of the benefit/fund which can be accumulated for a specific member
- The entire account can be as a lump sum on leaving service or retirement (subject to being over age 50 for schemes recognised by the States of Guernsey Revenue Service)
- Pension income is paid gross, without the deduction of tax
- Benefits may be transferred and received from other pension arrangements
We have extensive experience in assisting many clients design and implement their retirement plans, alongside their advisors. When the plan is set up, we handle the day-to-day administration of the pension plan from Guernsey, working alongside investment managers, administrators and insurers to meet all our clients’ requirements.