When the time bomb does go off, it will cause varying levels of damage to different groups of people. For instance, there has been much written on the gender issue and how female employees, for a number of reasons, can often find themselves disadvantaged compared with their male counterparts when it comes to planning for retirement.
Expats could suffer too
Although less documented, another grouping of individuals who can often find themselves left wanting when it comes to retirement planning are those working internationally – the expat community.
Individuals living and working outside their domiciled country can often find themselves facing more hurdles than if they were working in a domestic situation.
Planning for retirement requires a long term strategy and working in another country can mean that the longer term is unclear for a variety of reasons, such as the possibility of having to return home to care for sick or elderly relatives, language difficulties, children’s schooling issues and the prevalence of short term contract work.
It is difficult to plan for the longer term in any case but when the short to medium term is unclear then this becomes much less manageable, generally leading to one adopting the ‘ostrich approach’.
It is well known that in many OECD member countries ageing populations and reducing birth rates are the key underlying issues with pension funding. And we read all the time how market slides can wipe billions from the value of pension funds, which is enough to scare anyone.
Adopted strategies
These countries have been and are still very much in the process of challenging their pension deficits and are generally adopting three approaches through various reforms.
The first approach is to increase the pensionable age – a policy being adopted by most countries, including the UK.
The second way of achieving the balance between adequacy and sustainability, and which is being adopted by OECD member countries, is a greater re-distribution of public provisions, i.e. concentrating the benefits on the most vulnerable.
While the third most effective solution is to encourage individuals to save for their own retirement through government backed automatic enrolment schemes such as the Kiwisaver scheme in New Zealand, the Riester scheme in Germany and the more recent NEST scheme being rolled out in the UK. All these schemes will have the same common goal but with very different rules applied.
Aside from the short term uncertainties mentioned earlier, another issued commonly faced by expatriates is a build up of numerous pension pots in different jurisdictions.
Despite perceptions, the reality is many workers will find it difficult to move their pension schemes from one country or company to another as they will often be non-compatible with a new scheme.
Structures, such as Qualifying Recognised Overseas Pensions Schemes (QROPS) which allow pensions to be transferred outside the UK, have their place and are definitely an advancement in flexibility afforded to UK expats, but are not suitable for everyone.
For many years now there has been talk of international pension schemes, yet still nothing has developed that lends itself to an even playing field for the international worker. Despite the globe becoming more accessible and more individuals working internationally I don’t see anything being developed for some time as governments are currently too busy trying to sort out their own domestic pension issues.
The generation behind us are being educated of the retirement issues and will be wise to the fact that they need to take heed and make provisions for their retirement.
The generation before us saw the ‘Golden Age’ of pensions with the possibility of early retirement to enjoy the fruits of the 30 plus years that they worked for the same institution.
Our generation is still sitting on the time bomb and needs to take control quickly to minimise the aftershock.
Gavin Pluck is regional director of Guardian Wealth Management
