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The word pension has a strange effect on people – often at the very mention of pensions, they start to glaze over and decide that there is something, or someone, more interesting they should be dealing with.
The thing is, if you think pensions are boring, how interesting do you think a retirement in penury is going to be? Harsh, I know, but this is the reality. The sooner you think about your pension, the easier it is to get what you want.
Ideally, you need to think of your retirement planning in two parts: what you need to do to save while you are working, and what you need to do to generate an income once you retire.
How you save for your retirement to maximise the tax benefits available to you will depend largely on where you live and where you are considered to be domiciled, and even who you work for. Expats are in an interesting position as they may be able to benefit from a tax-free income, but could be excluded from a ‘traditional’ style pension because of the jurisdiction they live in. But some international companies have schemes set up that are designed to help different nationals get the best from their contributions.
If this is not an option, an offshore pension is essentially a long-term regular premium savings plan which usually has an element of life cover included. There is no specific tax rebate available on these like there would be in a ‘home’ pension plan for many people, but if you are living in a regime where you are paid a tax-free income, you are effectively getting the same benefit in any case.
People get very het up about how complicated pensions are, and to be fair I can see why. But if you remember that in its simplest form, a pension is a regular savings plan it becomes a lot clearer. Yes, there are lots of other bells and whistles available, but remember that if you find the issue confusing.
You do not have to use a pension to save for your retirement, far from it. You can use any number of investment plans or property investments. In fact, many people will build a property portfolio specifically to generate an income from rent when they retire, which is a perfectly legitimate way to pay for your twilight years.
Yet for most people, a pension will provide the discipline they need to save for such a long time into the future. Remember too, the chances are you already will have a number of pensions you paid into with previous employers. When you come to retire, you need to ensure you get all the money due to you.
If some of your pensions were built up in the UK, even if you are not British, then using a Qualifying Registered Overseas Pension Scheme (QROPS) makes sense. You would transfer your pension into a QROPS, which allows you to take your income without it being subject to UK tax. This would give you a major benefit in retirement, but you can also borrow against your QROP in certain circumstances.
The important thing is to get advice as soon as you can about your pension planning, because if you leave it too long, it will be a lot harder to get the results you want.
First published in Asia Life
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