Are we right to tick that box and move on to another area of financial planning? Shouldn’t we stop and say instead, “Okay, but let’s review the plan you’re currently in, and check out all the other plans that you, as an expat, must have stored away in the deep freezer of the countries you’ve worked in”?
As expats bounce from one country to another, they build up a legacy of pension plans as they cross borders, even those who remain employed by the same company. If a client has moved from, say, the UK to Germany, and then on to Switzerland, and then returned back to the UK, he or she will often have left behind a trail of “frozen” pension plans that, individually, cannot deliver the retirement income that this client is anticipating.
To be sure, a growing number of companies are aware that working abroad for significant periods of time disadvantages their expatriate staff, and are looking at ways to make up the shortfall, but most are still largely oblivious, as are the employees themselves.
To me, this is all the more reason for every adviser in the world who has expatriate clients to insist upon a corporate pension review, as a matter of course, as soon in the relationship as possible.
Sadly, it has been my experience that, after having the details of their company plan spelled out to them, most clients are shocked to realise the extent of their potential shortfall.
The biggest shock of all comes to our younger clients. At a seminar recently on this topic, the head of HR for a large corporation confirmed this. She said she had never received a call from any employee under the age of 45 enquiring about the company plan, how it works, what it delivers, and what can be done to achieve the very best outcome.
Our job is one of flag-waving about likely shortfalls and to do this we must put the time in to find out the details of what pension plans the client already has. Assessing with the client what would be an adequate annual income to live the retirement life they are working towards, in which location and under what tax scenario.
Once a realistic scenario is known, redress of any shortfall may begin. It might be, and in many cases often is, that the best course of action is to increase voluntary contributions into the current company plan. It may be that a different type of savings plan should be established to run alongside the company savings scheme. Whatever the solution, the need must be unearthed by the IFA and explained to the client.
Following on from that, advisers should also assist with the frozen pension plans bringing order to what can be an administrative nightmare for a client to sort out by themselves. Nowadays, the average stay with a company for an employee is five to six years. For an expatriate, working abroad for a couple of decades, typical movement between companies and countries can easily cause a pile up of frozen pensions to number six or seven.
I’ve come across a number of situations where expats have found themselves in a defined benefit scheme but had to leave that behind as they have moved into a defined contribution scheme. As with country borders, these schemes do not easily transfer into one another and our clients are often forced to leave their money trapped in stagnant plans.
The role of an IFA is to explain the company plan and ascertain whether it will deliver an adequate income on retirement. And we must find ways to do this without alienating or disturbing our clients and in a diplomatic manner so he or she doesn’t feel stupid – no small task but one that reinforces the value and worth of our role.
