Pension & Gratuity Funds

Jersey, as an international finance centre, is well known in the Gulf region for its traditional financial services of banking, wealth management and corporate services, but a well-kept secret (as least until now) is its strength in the pensions arena.

The UAE government is debating legislation regarding the introduction of mandatory pension provisions for both local and expat employees.

For many years, Jersey has provided pension trustee and administration services to a wide range of international private and corporate clients, and, with legislative amendments made in 2015, the jurisdiction is well placed to expand this sector further. With an increasing focus in the GCC on retirement planning and on-going discussion on alternatives to End of Service Gratuities (ESG), Jersey is well positioned to provide pension solutions in the region.

Jersey’s pension law is detailed in the Income Tax (Jersey) Law 1961. It has been utilised over several decades to enable individuals and employers to make provision for their own or their employees’ retirement in a tax efficient manner. This piece of legislation has, for many years, permitted non-Jersey residents to take advantage of the jurisdiction’s secure and well-regulated environment for pension funds. This was further enhanced in January 2015 with additional amendments to the Law to further expand Jersey’s expat pension opportunities.

Jersey Pension Trusts

In the modern era, the majority have turned away from insurance based company pensions, due to their high charges, limited fund choice and poor performance. The enlightened route today is to structure a pension plan within a trust.

Jersey is a leading jurisdiction globally for trusts, with a pedigree in the field of administering trusts going back to the 1960’s. It offers a robust, modern and sophisticated legal framework, which has enabled it to lead the way in delivering private client and corporate services. A Jersey pension trust, looked after by expert, qualified and experienced professional trustees, provides a secure vehicle in which to save funds for the beneficiary’s later years.

Corporate Pensions

In today’s competitive marketplace, employee benefits have emerged as essential tools used by companies to attract, incentivise and retain key staff. More and more employers with personnel in the GCC are investigating corporate pension schemes to be provided either alongside their ESG obligations or to replace them.

Pension contributions are not considered to be part of salary for the purposes of calculating the ESG and employers can award additional benefits to senior employees without significantly increasing their liability for the gratuity.

With the exponential growth that the Gulf region has experienced in recent years and the plans to develop the economy further, more non-local expatriates are staying for longer periods in the area. With people living longer, their expectations of a comfortable retirement require careful planning. The capping of a maximum ESG payment of 2 year’s basic salary will provide insufficient funds and so alternative measures are required.

The ESG payment is not, of course, guaranteed and can be reduced or withdrawn under various circumstances, and what if the employer goes into liquidation? A separate corporate pension fund in a trust will be ring-fenced from the company’s creditors and will survive to serve its intention.

The UAE government is debating legislation regarding the introduction of mandatory pension provisions for both local and expat employees, which may become a costly and cumbersome administrative burden on the employer. Employers wishing to design their own pension schemes may benefit from having those schemes in place before legislation is introduced.

Qualifying Recognised Overseas Pension Scheme

A Qualifying Recognised Overseas Pension Scheme (QROPS) is a scheme that has been recognised by HMRC as meeting their criteria to receive transfers from pension schemes in the UK. It allows anyone who is living outside the UK to transfer their UK approved pension into an approved offshore pension scheme without deduction of tax. For those individuals that qualify for such a pension, a QROPS plan provides greater flexibility, improved tax efficiency, and a wider choice of investment for retirement planning.

Other jurisdictions have been providing QROPS to UK expats for many years and Jersey amended its tax legislation in January 2015 to permit them to be arranged here. With Jersey’s reputation around the world as a leading finance centre, a great deal of interest is developing in this important market.

International Pension Plans

Jersey pension law permits an extremely flexible retirement planning solution for the internationally mobile. Designed for expatriate or international executives and employees, professionals, entertainers, sports persons and other global ‘nomads’, the International Pension Plan (IPP) offers tax efficient pension planning, as well as a wide range of investment opportunities.

An IPP can be arranged in any major currency (for example, GBP, USD or AED) with ‘open-architecture’ investment options. With no lifetime allowance restrictions, tax free fund growth, and no limit on the age at which benefits can be provided, a Jersey IPP is an attractive pension trust solution in which to save.

Courtesy of Jersey Finance.

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