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Why Guernsey for pensions?

29 June 2021

Written by Anton Seatter JTC

Anton Seatter, Director of Employer Solutions at JTC, recently shared his insights on the appeal of Guernsey’s pensions proposition and the jurisdiction’s strong ties with South Africa when he spoke at the WE ARE GUERNSEY South Africa Private Wealth Virtual Roadshow. He also spoke of the importance of strong governance and the role it plays in the operation of Guernsey retirement and savings plans at promotional agency's UK Pensions Roadshow.

Guernsey’s experience and expertise in the retirement market is leading to the increasing use of the jurisdiction as a centre of excellence for plan governance.

Companies find they do not always have the infrastructure to perform the extensive plan governance they would like. As a result, some face challenges to ensure their pension plans are consistently governed and experienced Guernsey practitioners are stepping in to assist.

Background to Guernsey pensions

Guernsey has led the international pensions market for more than 50 years. 20 years ago, it was one of the first jurisdictions to regulate pension providers and in 2017 it introduced additional pension regulations to further enhance member protection.

That long-term experience means Guernsey is well positioned in this space and is seen as a gold standard for international pensions. Guernsey offers anyone setting up a retirement structure access to world-class expertise and experience with a modern and principles-based regulatory regime which conforms to international standards. This is underpinned by the security and stability of one of the world’s leading international finance centres.

The Guernsey pensions industry recognises that international pensions are constantly evolving and therefore takes a collaborative approach to ensure the island stays at the forefront of international pensions. Via the Guernsey Association of Pension Providers (GAPP), professional service providers work closely with the Guernsey Financial Services Commission, the Guernsey Revenue Service and Guernsey Finance to maintain its industry-leading position.

Why would a Guernsey pension be of interest to someone in South Africa?

Guernsey has a long history with South Africa; this includes pensions but it also goes much deeper than that. For example, Guernsey has significant experience in supporting South African asset managers with their global distribution needs, and in supporting South African families with their family wealth, investment and succession planning.

Guernsey is very good at tailoring solutions around the needs of clients. In the pensions space, the jurisdiction has built a full range of retirement options covering both individuals and corporates and which are flexible enough to accommodate most plan design needs.

South African corporates and individuals choose Guernsey pensions for a number of reasons. This includes tax efficiency, asset protection, design flexibility, estate planning and international diversification.

Are there different options for individuals and corporates?

Yes. Recognising the different needs, the Guernsey pensions regime is split into retirement options for corporates and individuals.

For corporates, the 40(o) pension plan is used by South Africa-based companies for their international populations and by non-South African companies for their employees based in South Africa. As with personal pension plans, they can be used as the primary pension pot or they can be used as a top-up arrangement.

In addition to design flexibility, South African companies like to take advantage of having a single centralised retirement plan for employees in multiple locations as it helps simplify their international operations, reducing the number of counterparties and operational risk.

For individuals, the 40(ee) personal pension plan is commonly used by South Africans who are resident in South Africa and those who are internationally mobile. It can be used as a pension top-up arrangement, or it can be used as the main pension pot.

What makes a Guernsey pension different to a South African pension?

There are a number of attractive features of Guernsey pensions:

  • They are extremely flexible and can accommodate a wide range of plan design needs;
  • There are no contribution limits. This is particularly attractive to high-net-worth individuals who have the ability to build up a significant retirement pot;
  • At retirement, members can take a 100% lump sum distribution and are not required to acquire an annuity;
  • A wide range of multi-currency international investment options. This is attractive to corporates or individuals who do not want to be pegged to the rand or have South African investments as well as high net worth individuals who value investment flexibility. We look after pensions with a wide range of investments, including private equity, real estate through to real assets, such as art;
  • Lastly, because the pension is already offshore, it provides maximum flexibility if the member plans to move to another country in the future as their pension is held outside of South Africa.

What are the key considerations for an individual or a company thinking about a pension in Guernsey?

One of the first things is to have the end goal in mind. Where the client is a corporate with multiple, possibly, competing objectives, then we can establish a parallel structure designed to meet the needs of different employee groups. Guernsey pensions are very flexible and can be designed to fit a clients’ exact requirements. Standardised or ‘off the shelf’ retirement options are available but it is important to make sure these reflect the clients’ objectives.

It is important to take proper advice and work with an established pension provider. The adviser and service provider will guide the client to ensure all aspects of the pension – design, operation and investments – align to their needs. An experienced pension provider will also have dedicated people, processes and technology which ensure your plan operates smoothly.

Lastly, do not to be put off by the fact they are offshore. It is tempting to assume that sort of solution is reserved for high-net-worth individuals or large corporates, but that is not the case at all. We are entrusted with the pension plans for a large cross-section of individuals and corporates. Guernsey is good at providing a standard product where necessary but due to the flexibility of their pensions regime, it can be scaled up to be as tailored as you need.

Reputation

The jurisdiction already has an enviable reputation in the pensions market where it has built a full range of retirement options and has the experience to cover a wide range of disciplines including trustee, administration, legal, actuarial and investments. However, regardless of whether it is a Guernsey based plan or not, the jurisdiction has the depth of experience to support companies seeking to outsource their administration or governance needs and other specialist services.

Pensions governance is the system of oversight and controls designed to monitor schemes to ensure they operate in the members’ interest and covers all aspects of the plan’s operation including:

  • The review of service providers, including the administrator
  • Agreeing the principles that govern the way the money is invested and ensuring those principles are adhered to
  • Managing conflicts of interest and ensuring transparency of fees
  • Ensuring members have a voice in the running of their plans

Effective

Effective governance requires a structured approach that ensures processes are well tested and subject to regular reviews, that roles and responsibilities are clearly defined and that the direction the plan is taking links back to plan’s objectives and member needs.

There is also a strong focus on risk management to help identify potential issues before they happen. The aim is always prevention but if something does happen, the priority is to resolve it quickly, making sure it does not happen again and crucially, ensuring members are not disadvantaged.

The future

The issues around pensions and good governance are evolving all the time. Not unexpectedly in today’s climate, there are a multitude of challenges, not least investment uncertainty, increased regulation and more companies and members facing financial hardship as a consequence of the pandemic and its impact on lives.

Another major driver for change is in the ESG arena. Members are very conscious of the world they will retire into and want their retirement plans to take this into account when determining investment options. There is a general desire to engage even further on ESG matters, with the emphasis on greater integration alongside active monitoring.

Looking to the future all these factors suggest more time will be spent on plan governance which will create added pressure for companies operating multiple plans.

However, technology is moving at a rapid pace and is changing how governance is delivered with the likelihood that artificial intelligence will play a supportive role in more powerful reporting.

Furthermore, international plans will likely become even more attractive. Not only are they cost efficient but they also drive effective governance as they cut down on the number of counterparties.

Guernsey is a natural choice in the pensions market with their service providers either acting as an extension to corporate teams, or supporting them in everything from administration to governance to the outsourcing of specialist activity such as ESG monitoring.

Watch the South Africa Private Wealth Roadshow webinar on demand here.

Watch the UK Pensions Roadshow webinar here.

This article first appeared on JTC’s website.

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