Jeremy Slater talks to pension experts for their advice on how you can begin assessing your expatriate pension programme.

Apart from remuneration, creating the right pension packages for expatriate staff can be one of the most time consuming tasks for a human resources officer. This is because the technical and legal issues involved in creating the right pension scheme for a company’s expatriate staff can be very intricate and require a knowledge of tax and social security laws in the countries that the officer’s business is present.

The first thing you must decide is who needs to be involved in the scheme and whether it should include all expat staff or only those on medium or longer-term postings.

The length of stay abroad can affect whether an employee remains part of the home country’s system, has an interim package (which then means they can re-enter the main company system) or becomes part of the system in the country in which they maintain residence. Human resources officers can prepare a dossier based on using many legal books and using the Internet, as several consultants have websites that can be used for reference.

"Essentially you have to decide what sort of expats you want to involve in a different system and those you want to remain as employees," says Simon Dudley, head of the international division at consultants Watson Wyatt. "On the technical side we can advise on the type of benefit package offered and the best ways of supporting that promise."

"Human resource people also need to think about how many staff you want to involve in the scheme. If it is only one or two among hundreds then perhaps the company can set up a special fund. A number of companies I have advised have created off-shore funds for such employees," Dudley says, adding, "Another consideration is where are these employees going next."

Having decided who should be included, where and when a company should create a scheme it is time to call in a specialist. This is because the know-how needed to produce the necessary packages will require an in-depth knowledge of local tax laws and social security systems.

"An employee in Belgium has to be involved in a collective pension scheme, there is no choice," said Gys Celis, manager at Brussels-based consultant PWC.

"In the case of most short-term assignments it is much easier to leave the employee in the home country scheme. For longer-term assignments one has to consider what benefits an individual might lose from not being in the home country system and how this loss should be overcome. Also an employee should watch out for the problems of double taxation if they enter the social security scheme of another country. There has been a recent case in the European Court of Justice about this, which should make it easier for individuals to move around, but it must be something to take into mind."

Neil Irons, market manager for Europe at HR consultancy Hewitt Associates, advises companies to think carefully about what they want to achieve from the package before talking to experts.

"First of all I think you have to ask the question, what is an expatriate?" said Irons.

"They may be employed by the company from home or they be employed locally. Next you have to consider the types of plan you may operate and the primary benefits. If an employee breaks his affiliation with a company pension scheme he will lose on benefits and therefore has to be compensated for this."

Next, Irons says, examine the social security issue. Certain European countries have high social security benefits and others have lower. It maybe beneficial for some long-term expatriates to enter the local social security system, he suggests.

Irons also warns against creating an overcomplicated plan as the costs for this maybe extremely high. "An international plan could give everybody the same benefits, but it could be expensive. Such a plan could be considered as the highest common denominator."

The trick is to offer compensation for expat employees, but not at a high cost, he adds.

Irons also says that a scheme will often reflect the culture of the company. For instance, a small high-tech business may offer cash bonuses to expat staff instead of a pension scheme, whereas a multinational company would have a more formalised system in operation.

"What, say, Unilever does is not going to work for a small software company. For them a different strategy is going to fit with the company’s image," he said.

In all it is about common sense, not rocket science, says Irons.

"Consider how many people are going to need the scheme, where they are going, how long they are going for and what level they are in the company. Also think will the scheme work and how do I implement this."

November 2002

Jeremy Slater is a freelance business writer based in Brussels.