International Pension Schemes

When Can Your Client Take Benefit and What Are Their Options?

An important part of planning for your client’s retirement is knowing when they can start to receive funds from their Plan to have the lifestyle they want during their golden years.

You can construct highly personalised retirement arrangements; however, this is all dependent on the nature of your client’s Plan as well as the jurisdiction they choose to retire in. As the benefits payable may differ, we thought it would be useful to cover the main types of benefits available from International Pensions.

Benefit Age

Each International Pension Plan will have a chosen retirement age known as the ‘mandatory retirement age’. This is the age before which no benefit can typically be taken. The minimum retirement age is generally between the ages of 50 and 55 years of age. Pensions will normally also have a date on which benefits must commence known as a compulsory benefit age. This tends to be from 75 years of age but in some cases may be as much as 90 or may have no requirement. Most International Pension Plans also make provision for early access to benefits where a serious illness or disability may occur or may even allow a member to borrow against their Plan if certain requirements are met.

Benefit Type

International Pensions are generally money purchase arrangements, where the contributions are not Tax relieved and as such offer significant flexibility in terms of the types of retirement benefits available.

Lump-Sum Benefits

A Lump Sum benefit payment is exactly that. A single sum of money paid to your client by their Pension Plan, which can be extremely useful for a myriad of different scenarios, such as paying off a home loan or where your client is accumulating funds for a very specific need post-retirement to simply getting access to a lump sum to fund retirement expenses. Most International Pension Plans allow a single lump sum to be taken, however, they may have restrictions on the percentage that your client can take. Using ad hoc lump sums can prove very beneficial as these lump sums enable your client to match their benefit payment with their exact financial need, which could be equal to the full plan value. This flexibility is often seen as one of the main advantages of International Pensions, as benefits are paid as required rather than regularly. One must also consider the tax on lump-sum benefit payments and in certain jurisdictions, lump-sum benefits are received free of tax, while others may tax such payments.

Annuity Income Benefits

Annuities are regular income payments that will either be selected for life or for a certain specified term, depending on the product option your client holds. An annuity for life is calculated using actuarial means and takes into account life expectancy. When an annuity is paid for life, the annuity is reviewed periodically, normally every 3 years or every year where your client is above the age of 75 years and may be adjusted following an actuarial review process. This is to ensure that the level of payment remains in line with these annuity calculations. Annuities can also be short-term in nature and are referred to as Temporary annuities. These are regular payments that can be made for a specified term being no less than 3 years and normally not longer than 10 years. These annuities are not calculated actuarially and rather set aside capital to support the annuity obligation. As with lump sums, the taxation of an annuity will differ from country to country with some countries having highly preferential tax treatment for annuities, whereas others do not.

In Summary

International Pensions offer your client complete flexibility to construct a highly personalised retirement solution to meet their ever-changing needs, however, it is important to know what benefit options apply to your client’s Pension Plan, which should include understanding the tax implications of their preferred benefit option. It is therefore always important to get financial advice before taking any benefits.