How to build up your pension as an expat
As an expat, travelling the world is second nature to you. But what happens to your state pension, company pension and/or private pension in the meantime? Dave Deruytter, head of expats & non-residents at ING Belgium (pictured below), sheds light on how the pension system works for expats and what you need to keep in mind.
Why are pensions such a complex matter for expats?
“Understanding, planning and optimising pensions is already complicated, even in the ‘simple’ case of local employees who stay in one country, with the same employer, for the whole of their career,” says Dave. “So you can imagine just how much more complex a matter it is for expats. And the more countries they live or work in, and the more employers they work for, the more difficult things get. And to make matters worse, by the time you reach retirement age, your first employer may no longer be around or may have changed names several times.”
Do all expats encounter the same issues?
“Of course, people who work for international institutions or governments their entire career (eg EU and NATO civil servants, military personnel, diplomats, etc.) typically only have one entity to turn to: the pension fund for those institutions. And that simplifies things a lot. But for expats in the private sector, things are more complex,” explains Dave. “To give you an idea, this is what may happen to their state pension, company pension and private pension.”
“Within the European Economic Area (EEA) and in countries with which your home country has Social Security Treaties, things are reasonably well organised in regard to the state pension. For other countries, there may be a special State Pension scheme. In Belgium, this is called “Overseas Social Security at the NSSO, AD VII”.”
Dave continues: “Nonetheless, keeping all your pension data up to date for each individual country is often an administrative nightmare. And by the time you do qualify for your pension, it takes some time before you actually receive your pay-out in dribs and drabs from all the different pension administrations involved. But in the EEA, or in a country with a bilateral social security treaty, the pension pay-out request (although not the pay-out itself) is centralised in your country of residence at the time.”
Did you know?
The Belgian pension system is based on 4 pillars: the statutory pension, the supplementary or extra-legal pension, the individual pension savings plan and individual savings and investments. Find out more about how the Belgian pension system works
“On the company pension side, it takes a lot of work for companies to have the situation fully under control. Typically, a company will either make a Pension Promise (where you receive the same pension as an employee of the same level who stayed in the home country), or try to include the expats in the home country scheme (which is not easy operationally, legally or tax-wise). Alternatively, they can set up an International Pension Scheme, often offshore (which is not always easy to manage or to ensure it is legal and tax compliant). Furthermore, it is not always easy to compare an Offshore Pension Plan with what an employee’s peers in the home country will receive.
Things become particularly complex when you change employer or move between countries frequently. The issue is always the same: keeping track of the pension contributions you have built up with different employers in different countries; how to comply with local and international regulations; taxation of payments into the pension scheme; income in the scheme; and, last but not least, the eventual pension pay-out from the company pension fund. Pay-outs are usually taxable in the country in which you reside at the time the pay-out is made.”
“A private pension is easiest, if there are no associated fiscal advantages. This is then the same as regular savings and investments for a future purpose: income after retirement. Yet, these days many countries offer so-called tax-facilitated private pension schemes. This is partly due to the low amount of state pension they promise or because of the increasing age at which people are eligible to receive their state pension. Quite a few expats take out these tax-facilitated private pension schemes but the conditions linked to them may pose problems when you move to another country, particularly one outside the EEA. Taking out a tax-facilitated private pension scheme isn’t recommended if you’re likely to stay in the country for less than five years. If you do stay longer, it may be a good option.”
“All in all, good administration is the key to ensuring a smooth and hassle-free retirement. So the best advice is to start preparing for your retirement today or at as young an age as possible,” concludes Dave.
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