1. Saving for a rainy day
Over the past century, the concept of retirement changed from being perceived as a luxury
to an expected right. During the same period, however, life expectancy significantly
increased.
According to a research paper prepared for the House of Commons, in 1901, males were
expected to live for 45 years and females for 49. Current UK estimates from the Office for
National Statistics for male life expectancy at birth are 78.1 years, and 82.1 for women.
Unfortunately, as people have come to expect longer lives, our pension systems have not
been adjusted accordingly. While rising life expectancies are good news, they place
increasing emphasis on individuals to fund their own retirement.
A survey conducted by Allianz asked the question: “Which do you fear the most: outliving
your money in retirement or death?” Surprisingly, 61% said they were more scared of
outliving their assets than they were of dying.

2. The Bismark Sinks
Modern pension systems can trace their roots back to the late 19th century, when
Chancellor Otto von Bismarck introduced one of the first nationwide social security systems
in Germany. Since then, pensions have spread and become established globally.
State pensions use the tax taken from the income of younger working generations to fund
older generations. As global birth rates continue to drop, people live for longer and fewer
workers are left to support an increasing number of retirees, pressures on global state-
pension systems will increase.
Fears for us investors
Inevitably we will see continuing major reforms in most countries over the coming years. For
example, in the UK, the state pension age will be raised to 66 from October 2020, and
pension experts warn that the latest life expectancy calculations could pave the way for it to
hit 68 as early as 2027.

3. Emerging markets
Looking further afield, the large emerging economies of India and China are in particularly
poor shape. China faces a demographic time-bomb more severe than any developed
country, caused by its one-child policy. India has a much younger population, so its
demographic problems will inevitably be deferred.
In the United Arab Emirates, only nationals are eligible for state benefits and these do not
stretch to expatriate employees. In Hong Kong, the normal retirement age is 65. The social
security system provides benefits to the elderly, but these are means-tested.
Employer schemes
At the same time as state pensions come under increasing pressure to fund retirement
provision, occupational schemes face similar difficulties. These schemes can be either
defined contribution (DC) or defined benefit (DB) arrangements.
With a DC scheme, the risk for providing an adequate pension rests on the accumulated
savings built up at retirement. With a DB scheme, the investment risk is taken by the
employer and the member is guaranteed a retirement income based on pay and length of
service. It has been reported recently that there is a UK corporate pension deficit of £295
billion.
Regular premium savings plans
It is becoming obvious that we must all look beyond state and occupational pension
schemes, to ensure we have sufficient retirement income in our old age.
One of the ways this can be done is to invest in a regular premium savings policy issued by
an offshore provider. These plans are generally available for UK expatriates or foreign
nationals, and are designed to generate capital growth over the medium to long term.
Because the policies are issued offshore, there is no liability to tax on the income or capital
gains of the various funds. Therefore, apart from any withholding tax that may be deducted
at source on income arising from certain investments, the underlying fund grows without
any further deductions of tax.
Regular savings contracts also encourage the discipline of commitment. Premiums can start
off small and be increased over time, making the plans accessible and flexible.

4. UK life expectancies since 1900
For example, it is sometimes possible to change the frequency of the payments and to take
a break from paying premiums should circumstances change. Lump sum top-ups can
normally be accepted, perfect for boosting the retirement pot should an individual receive
an unexpected windfall.
Risk profiles
In an industry that is becoming increasingly competitive, there may also be incentives in
return for larger monthly premiums or extended payment periods.
It is important that any funds selected match the investor’s chosen risk profile. Most
offshore regular premium policies allow for a broad choice of asset classes, risk profiles,
currency denominations and geographical sectors, from a wide selection of fund houses.
Furthermore, when an individual is unsure about where they should be investing, or does
not have the time to continually monitor investment markets, it is usually possible to invest
in a range of managed funds run by professional fund managers.
A real advantage to saving monthly is that individuals do not have to concern themselves
with market timing or identifying the best moment to commit. If money is saved on a
regular basis, when the share price is down, the individual’s policy buys more units. An
individual accumulates more within the plan when markets are low and then, as a sustained
recovery takes place, all of the investment units that have accrued go up in value. This is
called ‘pound cost averaging’.

5. Expatriate benefits
An important benefit, which will relate to UK expats only, is that upon relocation to the UK,
it is possible to benefit from ‘time apportionment relief’. This is a relief which reduces the
proportion of the gain subject to income tax by the amount of time spent outside of the UK.
So, for example, if a client had owned the policy for ten years but lived abroad for five of
those years, then only half of the gain would be taxable.
The international financial crisis of 2008 and 2009 highlighted the need for a compensation
fund for policyholders. Many offshore jurisdictions now offer the best investor protection
schemes in the world, providing all policyholders with compensation of up to 90% of their
investment value, in the unlikely event that the offshore provider becomes insolvent.
The wake-up call
Unfortunately, over the past couple of decades, western civilisation has not been adept at
saving. While many workers may have planned to retire between the ages of 60 and 65, the
truth is that they will either have to work for longer or save much harder during their
working lives. As the well-known author on time management, Alan Lakein once said:
“Failing to plan is planning to fail’’.
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