Historically most international assignees have been seconded to overseas locations for fixed periods of time. However there is a growing breed of 'internationalists' who have special pension provision requirements.
The international nomad can spend a large part of his working career moving from country to country serving one or more employers. He can be of any nationality and often eventually loses affinity with his home country. However, his mobility can be such that he rarely identifies or integrates himself with any host country.
The nature of his career can mean that, if he was placed in a pension plan in each host country, he would accumulate many pockets of local benefits and social security. Often there would be instances where he did not vest in local benefits or social security. The plans may be in weak currencies or benefits may not be payable outside the host country. In some cases there may be no local plans at all. The result will almost certainly be a hotchpotch that does not meet expectations.
For such internationalists the solution could be an overall umbrella service benefit promise. Wherever possible the employee would be kept out of local host country arrangements and the umbrella promise would deliver the benefits. For the individual's security, this liability would normally be funded through a trust established offshore.
The umbrella or retirement promise is made by establishing a retirement plan under trust in a well respected offshore jurisdiction, such as Guernsey, and adopting rules governing the plan. Contributions are paid into the plan to accrue the promised benefits and this process is continued throughout the mobile career.
The key attractions of using a properly established offshore trust are:
- security and protection of assets for the intended beneficiaries;
- no local taxes in the trust location on trust assets and investment growth; and
- no local withholding taxes in the trust location on eventual benefit payments.
Tax liabilities may arise in the beneficiary's host or home country, but this will depend very much on the individual's domicile, tax residence, and the nature of the trust itself.
Form and Style
Most employer sponsored trusts have the key objective of providing retirement benefits for international employees' eventual retirement. The flexibility of these trusts enables employers to incorporate (if they wish) most of the features found in pension schemes, plus a few others.
As offshore trusts allow more flexibility in design than most countries would permit locally, the form and style of international retirement benefit programmes can be quite varied to suit the different objectives of different employers in different countries.
International retirement benefit plans can have significant attractions in providing benefits in lump sum, tax free form for international personnel.
An offshore trust can provide significant tax advantages to participating employees, as well as opportunities for increased benefit flexibility. However, the cost to the employer of the establishment of a bespoke scheme on an offshore trust basis can be expensive, to which must be added the ongoing custodial and administrative costs. This may be acceptable to an employer with a large international work-force to be provided for in this way. However, it can be disproportionately expensive for employers with small numbers of international personnel.
Orbis Management Limited has established an offshore Master Benefits Trust in conjunction with KPMG. This enables employers to adhere to the trust, to promise benefits to their international employees, and to access a ready made custodial trustee and administration service. The Master Benefits Trust provides a high quality solution at reasonable cost.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to email@example.com