Retirement.

For many expats, pensions aren’t a particularly exciting topic. Younger readers can be forgiven for thinking that pensions aren’t relevant - since you’ve just started working, why worry about retirement when it’s 40 years away? Maybe you’re closer to retirement, and you’ve been investing in a pension for years, but you haven’t checked to see if your investments will give you what you need in your later years. Maybe you’re in the middle, and you know you need to start planning for the future, but your knowledge of pensions is limited. Whatever step you’re on, maybe you find the lingo, the changes in law and the general complexity regarding pensions off-putting and boring.

But investing in a pension scheme or renewing your current plan is an essential investment in your future. The earlier you begin to contribute to a pension, the easier it is to build up a large nest egg to ride out the peaks and troughs of the markets. If you want an enjoyable retirement, free from the burden of financial stress, now is the time to focus on your pension.

A Guide to Pensions

For many expats, occupational and private pensions offer great benefits because of the tax relief they offer and generous contributions from employers. For example, if you paid income tax at 40% on your UK income, a 100-pound contribution to your pension scheme would only cost you 60 pounds.

If you worked in the UK prior to moving abroad, it’s likely you contributed to an occupational pension. Since a UK law change in 2008, most companies will automatically enrol you into a pension scheme. You will contribute a percentage of your wage to your pension and your employer will match some or all of your contribution.

Certain types of occupational pension, known as defined benefit pensions, provide a lump sum upon retirement and a specific figure that’s paid to you during every year of retirement (commonly referred to as a final salary pension).

Another more common type of occupational pension, known as a defined contribution pension, uses the pension money that you and your employer(s) have accumulated during the course of your career and invests it in the stock market. At the time of retirement, you use the amount accrued to draw an income. The amount isn’t specified and will depend upon the investments’ performance.

***In light of the UK pension reforms in 2015, it’s crucial for Brits who were 55 years old on or before the 1st of January 2017 to review their Defined Contribution Pensions immediately. It’s now possible to cash out your full pension tax-free. With more and more pension schemes being watered down, this may be the time to remove your pension from the UK and invest elsewhere.

What Does This Mean for Expats

While occupational pension schemes are slowly emerging in the UAE, we are still a long way off from seeing them become commonplace. The benefits you receive in the UAE, such as tax-free income and end of service payments, mean that expats have to manage their own retirement plans. With the ‘spend, spend, spend’ culture of the UAE, it’s far too easy to live for now and neglect the future.  

Many UAE-based expats turn to personal pensions. As the name suggests, this is a pension scheme that you set up and manage. If based in the UK, you will still receive tax relief on each contribution to your pension scheme. Creating a private pension fund is a fantastic way to benefit in later life from the money you earn while working in the UAE.

Whatever your age, it is essential to meet with a trusted financial expert and regularly review your current pension portfolio. In some cases, it’s possible to keep contributing to your occupational pension scheme and private pension in the UK. The rules are extremely complex, so seek expert advice to assess your current position.