How to take care of pension funds if career is spread over many different countries?

Question

I am a young academic from The Netherlands presently working in Sweden. Due to the nature of modern Academia, I expect that within the next 40+ years, I will be working in many different countries around the world. I would like to not worry about my pension, but given the discrepancy between the design of many pension funds (working in same country, even at same employer, for decades) and the expected nature of my work/academia career, I probably should.

Note: the following two paragraphs are of speculative nature and do most likely not represent an accurate description of the future!

We jump to the year 2060. To combat problems caused by an aging population, rising health-care costs and a generally poor economic situation due to an increasing pressure on increasingly smaller resources, most governments around the world have risen the pension age to 75 years, and so has the one where I work. Finally I have reached by 75th birthday and I can rest.

In the past 50 years of work, I have worked in 10 different countries, including Sweden, USA, China, and Brazil. Through my life, there are two jobs I have held 10+ years. All others were temporary positions lasting between 2 and 5 years. Now pension money starts flowing into my bank account.

Or does it? Is the sum of ten small pensions equally good as one large one? Will a country I left 40 years ago even remember me — or how do I make sure they do? Should I have taken care of this when I was young and make private arrangements — or are there international agreements taking care of this situation? Honestly, I don't even know where to start and what questions to ask. 2060 — or even 2050 — is a very long time away.

I found a related question: Wandering EU worker: Pension / retirement fund if working in multiple countries?. This question is slightly different, has received limited attention, and I don't understand the answer: investigate if you're being treated as an expat or not (what does this mean? Isn't an expat just a synonym for a labour migrant?), you might involuntarily restrict yourself to less tax efficient savings vehicles (what is a savings vehicle?), and what is a second pillar as mentioned in a comment?

Where and how do I start thinking about organising funds for my old day if I expect to live and work in many different countries?

Answer 1

Well, perhaps "have a dedicated tax advisor" is an answer then. I wouldn't have thought of this, as it's not specifically about taxation, is it? Or more broadly "consult with a dedicated professional for the situation in detail"...

Yes, that is the only real answer you can get. Anything else will vary between highly localized to entirely incorrect.

Pensions are rarely defined benefit anymore, and not many countries still keep state-sponsored defined benefit pension plans. For most, what's left is Social Security system, which is in no way a pension. This is an insurance, and is paid as tax which is rarely refundable (but you won't always have to pay it if you're a foreigner in the country).

Usually, Social Security benefits are only available to citizens and (/or, in some rare cases) residents of that country. So it is unlikely (although possible) that you'll benefit from social security payments of more than one country.

Some countries have totalization treaties that make your social security payments in one count in the other. If you're in a country that has such an agreement with the Netherlands - you're lucky.

Your personal pension savings are basically tax-deferred investment accounts. But tax deferral in one country doesn't necessarily work in another. In the US you have 401k or IRA accounts, but in your own country they may very well be taxable. So you gain the tax deferral in the US, but if your own country taxes them - you lost the benefit, and you will still have to abide by the US tax rules when taking the money out. If you don't plan properly you can easily be hit by double taxation in such cases.

Bottom line, you need to plan your pension savings on your own, privately, with a good and solid tax advice (and pension planning advice) that would be relevant to all the countries that you are tax resident at at any given time (you can easily be resident for tax purposes in more than one country). These advisers have to take into account the laws of the countries involved, the tax treaties between themselves and between them and the country of your citizenship, and the future countries you're planning on visiting or getting old at.

Its complicated, and most likely you won't be able to predict everything, especially because the laws and treaties tend to change over time.

Answer 2

I am currently a non-voluntary member of four different retirement plans in two different countries. There are a few aspects to this (Caveat: this may be different for each country and change over time)

1. Whenever you work in a country with a federal retirement system you MUST pay into this system. This is a legal requirement and there is nothing you can do about it.
2. When you leave a country, different rules apply depending on the length of your stay. You need to study the rules for every country but typically it's like this: for a "short stay" you are not entitled to any retirement benefits but you can get all your contributions refunded in cash. For a "long stay" you are eligible for retirement benefits and you can't get your money back.
3. The benefits are "guaranteed". You will get retirement benefits from these countries regardless of residency when you retire. However, paper work, management and fund transfers to your retirement country may be cumbersome and expensive.
4. All federal retirement system in Europe and North America are currently in trouble. Many people consider this a "bad" investment and predict that a 20-something worker in the US will actually get a negative ROI (return on investment) on her social security payments
5. As the federal systems get more desperate, they may start to treat "short stays" even worse. They could decide to keep your contributions while not offering any benefit. This would be blatantly unfair but people who only stay in the country for a limited time are a weak political constituency and therefore and easy target.

I would consider the following strategy

1. Study & monitor carefully the current rules for the country that you are currently in and that you are planning to move to.
2. If possible keep most stays short enough so that you can get your contributions refunded when you leave.
3. Whenever possible, favor retirement savings vehicle where the money is actually yours and you have some control. For example in the US a so-called 401k plan allows for money to be saved tax-deferred, but it's still fully under your own investment control.
4. Many employers and universities do have retirement plans on their own. Inquire about them carefully, when you apply. If any possible, opt out and save the money privately.