Retirement is often described as the longest holiday of your life, and with the changing demographics of the western world most people can now look forwards to 15 – 20 years of retirement. However it is this ageing population which can threaten our future quality of life since it requires a great deal more funding during our working lives. Yet many of us still do not have a properly defined plan, either to determine how much we might need in retirement, or to help attain the goals we have set or to ensure we can live the lifestyle we have worked for.

Whilst we all look forward to the day when we can retire, free from the stresses and pressures of work, and able to do all the things we would like to do, without additional funding during our working lives the reality for many of us may be quite different.

In order to calculate your required retirement income you will need to list all your expected expenditure. In an ideal world most pension experts and actuaries suggest that you should aim to set aside enough capital to provide for approximately two thirds of your salary. However in reality it may simply be as simple as saving as much as possible whilst still working, in order to ensure the highest possible standard of living in retirement.

Delaying taking action is therefore the biggest problem for most people. For an individual with 25 years to go to retirement, a delay of five years will mean that for the remaining 20 years they will need to contribute twice the level than would be the case had they started 5 years earlier. Although 25 years may seem a long time, it is only 300 months in which to take action to prepare for your future retirement. We strongly suggest a regular review of pension planning provision, and an annual review is generally recommended to ensure that plans remain on track.

Blackden Financial can help advise you; initially this will be to determine whether you are on target to achieve your retirement objective, and if not, to propose an effective, tax efficient solution to help meet the shortfall.

The Swiss Pension System

The Swiss Pension system is based on a 'three pillar' complimentary combination of state, occupational and personal contributions.

1st Pillar - (AHV/IV - AVS)

The first pillar of the pension system is compulsory for the entire working population, and is funded from social taxes. This is designed to provide for the basic income needs in retirement. Contributions are deducted from taxable income and only taxed at the time of payment. Interest on contributions is not taxed.

2nd Pillar - (BVG/UVG - LPP)

Compulsory for all employees in Switzerland, and levied by social taxes payable equally by employer and employee. The percentages levied increase with age, and varies between 7 - 18%. Your pension plan can be 'liberated', with a cantonal tax levied, in certain circumstances, including commencing self employment, leaving Switzerland permanently, or within 5 years of normal retirement age.

3rd Pillar - (3a/b)

The 3rd Pillar is the third tier in the Swiss pension system, and is available to both the employed and the self employed in Switzerland, with differing maximum limits according to your employment situation.

• Employed - Maximum CHF 6,682 (2011)
• Self Employed - CHF 33,408 (2011)

There are various types of 3rd Pillar Investments, and although intended as a long term tax efficient Pension 'top-up', withdrawals can be made under certain circumstances, including:-

• Purchasing your principal residence in Switzerland
• Leaving Switzerland permanently
• Becoming self-employed in Switzerland
• Retirement

Advantanges

• Contributions can be deducted from taxable income at highest marginal tax rate
• Pension assets are not subject to Swiss wealth tax
• Interest and investment income is tax-free for the term of the savings plan
• Pension assets taxed at a preferential rate when benefits finally taken
• Can be used as a repayment vehicle for a Swiss or French mortgage

UK Pension Transfers

Working overseas can free you from the UK’s rules and regulations. Nevertheless, some of the UK’s most complex rules still follow you. One of those areas is pensions, and this already - complex area is set to get worse. Many expatriates struggle to keep track of any UK based schemes to which they belonged or contributed to before leaving the UK. As a result it can be easy to forget about these ‘frozen’ pension schemes.

However, following recent UK legislation, a number of possibilities now exist for expatriates who have either paid - up or ‘frozen’ pensions in the United Kingdom. This legislation allows those with UK pensions a number of interesting possibilities for managing their pension pot. The following is designed to provide background information on what is a complex area, although as individual circumstances will often differ, personally – tailored advice should always be sought.

Background

The origins of this legislation, which dates back to July 2006 were known as the ‘A’ day rules and were implemented by the UK tax authorities (HMRC) as part of a broader European – wide legislation for greater freedom of movement of pensions, based on the European Union’s 2003 Freedom of Transfer of Monies directive. With effect from July 2006 it became possible to transfer benefits from a UK pension scheme to a non UK pension scheme, known as a Qualifying Recognised Overseas Pension Scheme (QROPS), assuming certain conditions were met by the receiving Overseas Pension Scheme.

Options

There are two primary pension options for transferring your UK pension – a self invested personal pension (SIPP), and a Qualifying Recognised Overseas Pension Plan (QROPS).

What is a QROPS?

In basic terms, QROPS are personal pensions that are established outside the UK, usually in offshore centres such as Guernsey and Isle of Man, but also in countries as far afield as New Zealand or Hong Kong. The advantage of moving your pension out of the UK in the first place is to gain more security and investment freedom, more transparency, and more control over your assets. An added benefit is being able to preserve the value of the pension for the next generation, for under the QROPS scheme they are exempt from UK inheritance tax. Obviously, you can only move your pension out of the UK if you yourself have already done so.

Under current UK legislation, to be considered as a QROPS, at least 70% of the fund must be used to give members a lifelong income in retirement. In addition, the 30% cannot be taken out before the age of 55 (previously age 50). Pensions can usually be transferred if no annuity has already been purchased or, in the case of Defined Benefits Scheme, the pension is not already in payment. QROPS must report any payments made from your pension to the HMRC over the first five years. No reporting is required after that period.

QROPS Benefits

There is a wide range of potential benefits of transferring to a QROPS, as follows:

• No requirement to purchase an annuity
• Greater freedom to manage the pension funds
• No need to buy an annuity at age 75
• Reduced currency risk
• Funds not subject to UK Inheritance Tax on death
• Income not subject to UK income tax

However a transfer to a QROPS may not be the correct solution for everyone, especially if the pension pot is a smaller one, or your future residency plans are unclear. In this case it may be much more beneficial to consider a transfer to a UK based Self Invested Personal Pension (SIPP).

What is a SIPP?

A SIPP is a Self Invested Personal Pension – giving much greater personal control over the management of the pension fund – as the name suggest - but still held in the UK.

SIPP Benefits

• Much greater investment choice than with a Personal Pension
• Reduced currency risk
• You have considerable flexibility as to when you retire
• Assets within your SIPP can benefit from significant IHT mitigation before age 75
• You can take out Tax Free Cash when you retire without buying an annuity
• Income Drawdown gives you the flexibility of more income options in retirement
• Remaining funds can be left to your children on death

How we can help you

UK pensions are a notoriously complex area and one which requires professional advice. Blackden Financial, with its roots in UK financial planning, is well placed to help. If you would like us to provide an impartial review of your own pension arrangements, please contact us at info@blackdenfinancial.com

Annuities

There are a number of reasons why a Swiss annuity might be of interest to many international clients:

1. Portfolio diversification
2. Tax advantageous
3. Secure investment
4. Creditor protection
5. Flexible range of solutions
6. Multi currency