Whether you eventually qualify for State Pension or not, it will be only a small portion of your retirement portfolio. For most professionals, the main part of their retirement savings is in employer-provided or commercial pension plans, stocks, bonds, funds and other investments. That said, a surprisingly high number of well-paid expats don’t actively save for retirement, only save insufficient amounts (experts recommend saving at least 15-20% throughout your working life), or arrange their savings in ways which leave them exposed to unnecessarily high risks, taxes and costs.
While retirement planning is never an easy task in this turbulent age, being an expat brings additional challenges:
Uncertainty about future location and lifestyle – You may have a good idea of your career and personal objectives in Dubai for the next years, but few people are able to plan as far ahead as retirement age. Furthermore, new opportunities and various unexpected events in both professional and private lives can change the plans very quickly. It is harder to plan for retirement when you are not sure where you will spend it and which other countries you may visit on the way.
Foreign currency risk – With multiple countries involved in your past, present and future life, currency fluctuations must be taken into consideration. We have recently seen that even the major currencies, like the pound, euro or dollar, can be very volatile. If you have your retirement savings denominated in currencies different from the one you will eventually need, adverse currency moves can substantially reduce your future spending power.
• Fragmented savings – A typical expat has worked for multiple employers in two or more countries and may have several different pension plans, savings accounts and investment accounts. This usually results in paying more fees than necessary and may also limit your access to some investments if all your individual accounts are too small.
• Difficulty and cost of moving your savings to another country – Some kinds of retirement savings, particularly pension plans, enjoy favourable tax treatment and various bonuses granted by the government of the particular country. Unfortunately, this also means that they are heavily regulated and moving the funds overseas may incur high fees, penalties and extra taxes. This is one of the reasons why many expats keep their savings fragmented, based in different countries and denominated in different currencies, with all the negative consequences explained above.
• Complexity and lack of knowledge of laws and regulations – Being an expat means that all your financial arrangements must comply with the laws and regulations of multiple countries at all times. The legislation for pensions and investments has been changing dramatically in the last years, both in Dubai and in the UK. It is hard to keep up with all the changes and details even when you are a professional specialized in that area. If you are not, it’s impossible. Not knowing the laws is not accepted as an excuse for breaking them.
At the same time, to not make all look so gloomy, your expat status offers various opportunities to make your pension savings more flexible, access investments not available for UK-based pension plans and reduce your taxes (during your working life, in retirement or when passing your estate to your children).
This often involves transferring your pension to a more favourable location (not necessarily Dubai) and/or consolidating your savings under a modern international pension scheme. However, with different personal circumstances of individual expats, there is no one size fits all approach and making changes to your pension savings without a good knowledge of all the laws and all the consequences, you can actually do more harm than good.
Before taking any steps you should always get professional advice from a reputable source (ideally a fully qualified adviser who has experience with the financial industry and related legislation in both Dubai and the UK).
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