Expat Offshore Pension Schemes

Mr. Jerome Robertson, Chief Operating Officer of Infinity Corporate Benefits Ltd, a business partner of Infinity General Insurance Cambodia, discusses the benefits of creating an offshore pension scheme for expatriate staff living and working in Cambodia. An offshore pension is essentially a master trust held outside the country of business for employees living and working within that country. The pension is held for the benefit of all employees in the trust and is generally invested in offshore risk-graded portfolios of funds that offer various rates of return and in a strong currency such as USD. Offshore Pension Trusts offer better security, as the pension is held offshore within a trust and is not connected to a company’s onshore assets.

The employer can decide on earmarked accounts, where each member has a separate account, or a non-earmarked account, where the employer pays all contributions into a single fund and then pays out an agreed amount at retirement or upon leaving—a type of End Of Service Bonus plan. The company also decides on ‘vesting periods’ linked to the contributions made by the employer.

Faith in the Cambodian banking sector has risen in recent years with the arrival of many large international banks, some of which offer domestic provident schemes. But for an expat, a domestic provident fund may not be the best solution. When they leave Cambodia, they usually have to withdraw the funds. An offshore pension plan can maintain the fund for as long as that individual works for the same company, anywhere in the world. Robertson notes, though, that such a scheme will not suit all businesses; a certain economy of scale must be reached before the pension plan is financially viable.

Usually, low-risk portfolios offer steady 5-6 per cent returns annually, while higher-risk portfolios can offer up to 20 per cent returns. Companies need to take into consideration setup costs, a domestic withholding tax when sending money offshore, ongoing administration costs of the trust, and asset management fees. Roughly, Robertson suggests, a business must contribute at least US$100,000 a year for earmarked type accounts and slightly less for non-earmarked types. It is therefore best suited to companies hiring high-end salary expat staff or a larger number of lower salary staff who work globally for an international company. Alternatively, it may be viable for a business with a large pool of lower-paid employees with a non-earmarked type of account.

The most likely clientele are international corporations whose employees move between countries. The pension stays in one safe place, accessible anytime, and can be contributed from anywhere. An offshore pension plan offers a company an excellent hiring tool and contractual features by attracting the best staff and then retaining them through company contributions and vesting periods.