International employees can have problems building a full retirement benefit entitlement, whatever their circumstances. This can cause employers major headaches but it is essential to get their retirement provision right if such employees are valuable to the business.
Most international employees are either contract workers, short-term assignees or long-term/permanent transfers.
Employers generally do little for contract workers, retain short-term assignees in a home country plan and transfer long-term assignees to host country local plans. The practice can vary according to individual situations and an employer's philosophy.
However, there is a special breed of 'internationalist' who invariably needs a different delivery system for his retirement benefits. This is the international nomad who can spend a large part of his working career moving from country to country serving his employer. He can be of any nationality and often eventually loses affinity with any home country. At the same time, 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 host country plan in each country, he would accumulate many pockets of local benefits and social security. Unfortunately, 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.
Provision under a home country basis (assuming an appropriate home country can be identified) could be the lesser of two evils in that a more complete career benefit could accrue. However, the emerging benefit could be in an inappropriate currency and form to suit the needs and final retirement location of the nomad.
For such internationalists who may, from time to time, even be put on an international company payroll rather than host country payroll, the solution could be an overall service 'umbrella' 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 and the offshore trust can come into play for just such situations.
The umbrella or retirement promise is made by establishing a retirement plan under trust in an acceptable offshore jurisdiction 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.
Therefore, no matter where the internationalist is posted (within reason) he remains a member of, and identifies with, the offshore trust.
Key advantages of the offshore trust are that the legislation of the country in which the trust is established usually:
q allows considerable flexibility over benefit design and operating conditions;
q enables the use of strong currencies for benefit promises and funding;
q does not operate any tax charges on investment returns or withholding tax on benefit payments;
q allows the benefit to be paid 100% in cash wherever the retiree directs.
The employer can set up a bespoke trust in the location of its choice, or take the less costly route of participating in an existing offshore master benefits trust - such as of the type established by our firm in Guernsey for this purpose.
Operating a centralised offshore plan means most of the internationalist's retirement benefit will come from a single source in a chosen hard currency. There are no exchange control restrictions or withholding tax on payment of the benefit.
Often, because career nomads are never sure where they will eventually retire, the offshore plan can give them greater flexibility in planning their retirement.
Depending on host and retirement country tax laws, the contributions into the trust and the emerging benefits may be taxable on the internationalist in those countries. Therefore, these issues have to be considered on each country move and for retirement planning and, where necessary, allowed for.
However, for many true internationalists and their employers, the offshore trust retirement plan has a valuable place in the overall benefit delivery system.
Roy Payne is principal consultant in the international benefits consultancy practice of KPMG Pensions in London