Page 6 - Ageing populations; boom or bust? - Lord Filkin, CBE

Page 4 - Risky business - Ian Murphy - Risk, Governance and Compliance Director

Page 2 - Handing over the baton - An interview with Hawksford’s current and future CEOs

Page 8 - International wills, probate & succession in Jersey, Channel Islands - Donna Withers - Probate Manager, Hawksford

Page 11 - Pension planning for expatriates in the GCC - Rebecca Ford, Partner and Judith Donnelly, Partner, Clyde & Co LLP

Page 10 - An overview of the tax rates levied in the Swiss cantons - Marc Renggli - Senior Lawyer, Hawksford LSS GmbH

Issue 8 Winter 2013

IN THIS ISSUE

GUEST

GUEST

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This is the last issue of Hawk-i before Peter Murley, CEO, retires after four years with the firm, leaving Hawksford in the very capable hands of Maxine Rawlins. Maxine joins from Ernst & Young where she is a partner and leads the Channel Islands’ Tax Practice. Prior to this she was chief executive of Maples Finance. There will be a period of handover before Maxine officially becomes Hawksford’s new chief executive officer early in the new year.

Handing over the baton

Issue 8 Winter 2013

What do you think are the most important things for a business like Hawksford to focus on?

Peter: Client service. We need to spend more time listening to more clients and intermediaries, understanding their needs and reviewing structures. Clients’ needs and circumstances change and we must ensure we are close enough to advise them swiftly and appropriately.

Organisations such as Hawksford depend on a strong reputation - providing consistently good client service is the only way to achieve and maintain this.

Maxine: Our top priorities should be to continue to put our clients first, to be excellent, to develop our people and to enjoy what we do. These are also the things I am most looking forward to at Hawksford.

Peter, what have been your biggest achievements at Hawksford?

Peter: I cannot take credit for any of the major achievements at Hawksford as everything has been a team effort. We have staff who are driven to do their best for our clients and who have worked amazingly hard to achieve great results.

For me, one of our biggest steps forward has been the creation of a solid, sustainable infrastructure. This has been achieved through establishing good, consistent processes and more efficient technology, systems and security.

Another achievement I am very proud of is Hawksford’s brand presence, which is in an entirely different league to where it was four years ago. We now have a strong brand and an exceptional reputation, which is backed up with solid infrastructure and knowledgeable, client focused staff.

What issues are currently facing the trust industry?

Peter: People are changing, structures are changing and the world is shrinking. New generations have different requirements and we must be able to adapt and act swiftly. People want more choice - of both jurisdiction and of structure.

It is no longer enough to simply provide trust administration services. All trust firms must become far more knowledgeable about how to run businesses generally to enable us to add real value to clients and intermediaries. More clients want a one-stop shop approach where, even if we are not the experts in everything, we can, through our great network, provide everything that is wanted from one place using trusted partners.

Maxine: Every industry has its challenges and the trust industry is no exception, especially in recent times. Transparency, especially tax transparency, is often quoted as a dominant challenge, though my own view is that it should not impinge the industry. We should welcome challenges, provided that they are properly made and that any changes are succinctly and efficiently implemented.

What challenges do you think the trust industry will face over the next few years?

Peter: The dramatic growth in regulation is, and will continue to be, an increasing challenge. Initiatives such as FATCA and information disclosure are all very necessary but hugely administrative and costly. Everything needs to be much more joined up and standardised. Being culturally aware of clients from different jurisdictions is also essential for future success.

Peter Murley Chief Executive Officer

T: +44 (0) 1534 740132

E: peter.murley@hawksford.com

Maxine Rawlins

T: +44 (0) 1534 740000

E: maxine.rawlins@hawksford.com

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Another challenge will be educating people that trusts are not tax avoidance or evasion tools and that Jersey is not a tax haven.

Maxine: Globalisation creates challenges, solutions and rewards. We, at Hawksford, should be part of the solution for trusts and all of our other services, which extend to legal, fiduciary and corporate services, among others.

The challenges of tomorrow remain as now: how do we deliver an outstanding service at reasonable prices in the context of increased costs of doing business? Reporting demands are the key element of this challenge.

Peter, has the industry changed during your four years as CEO?

Peter: There has been a great deal of consolidation in the market over the last few years. Many smaller firms have struggled, particularly because of the increase in regulation and the burden and costs associated with this; consolidation has brought economies of scale and wider capability.

The industry has felt the impact of the economic recession and it has been difficult for companies to grow organically.

The constant changes in regulation have had an impact. I firmly believe that regulation is necessary, however it needs to be managed much better than it is currently.

What changes do you think the market will see in the next few years?

Peter: More consolidation and much more internationalisation. Organisations need to focus on other jurisdictions as clients want to choose where their wealth is held, and this may span a number of centres.

The key to success in the next few years will be continuing to provide clients with the personal service that they want, despite the market consolidation - can the sector ‘giants’ do this? My crystal ball prediction would be that eventually we will go full circle and more boutique firms will open up again.

Maxine, what experience will you bring to Hawksford and its clients from your previous roles?

Maxine: I have been in the financial services industry for 20 years - as a lawyer, business developer, products initiator, tax professional and CEO. I am still learning but I will bring this experience with my commitment to the industry and to Hawksford.

Peter, what experiences will you remember most fondly from your time with Hawksford?

Peter: Hawksford is a fantastic place to work socially and has great team spirit. The quality and commitment of staff here is incredible and I have been made to feel very welcome as CEO.

Maxine, how will you approach your first six months in the role?

Maxine: I hope to listen well, understand more fully and communicate wisely.

What role does, and will, Jersey play in the global trust market?

Peter: Jersey still plays a very significant role on the world trust stage. It holds a large number of assets, has strong trust law, is highly regulated, and has an excellent reputation and a skilled workforce.

From a government and regulatory point of view however, Jersey needs to make decisions much more quickly and be swifter to change and adapt. The recession has changed the face of what we do - it is pointless talking about ‘the good old days’ - looking forward is the only way.

Maxine: I see Jersey as remaining a prominent and sophisticated jurisdiction, although not to the exclusion of other jurisdictions. We live in a diverse and increasingly integrated, globalised world; our horizons, services, creativity and solutions should be appropriately visioned.

What do you think are Hawksford’s biggest strengths?

Maxine: The quality, commitment and experience of the team and the company’s firm focus on providing excellent client service.

Peter, how will you spend your retirement?

Peter: I probably won’t be fully retiring, just going half time! I need challenges and to be around lots of people. I will hopefully look to do some non-executive and charity work, as well as spend much more time with my family, especially my wife and young granddaughter. Hopefully this will give me a good work-life balance - something I have never really understood or experienced up to now!

Any parting words Peter?

Peter: I am confident that everyone will get great benefit from Maxine joining Hawksford. She is just as committed to providing excellent service and will place a great deal of emphasis on our client work. Her strong technical knowledge will be a huge asset to Hawksford. I wish Maxine, all of our staff, clients and advisers every success.

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Managing risk is a key factor to operating a successful business. Jersey’s financial services providers must be on their guard as to the risks they face. It is not taking the risk, but managing the risk, that is the critical factor for success.

Risk is always present at Hawksford. We can never completely eliminate risk, but whatever approach we take to manage it, the end result should be the same: to control it.

Successful risk management can be cost effective. There is a need to balance risk and commerciality and apply appropriate levels of capital expenditure proportionate to the nature of the business concerned.

Jersey’s financial services providers are encouraged to adopt a ‘risk based approach’ in managing their risks. Industry regulator, the Jersey Financial Services Commission, describes the main risk elements as country, product, delivery and customer specific risk.

From a Hawksford perspective, client entities are categorised as high risk, medium risk and low risk. The elements that make up the decision to rate into a particular category can be numerous and diverse.

Risk management is best described as the identification, assessment, and categorising of risks, which encompasses the coordination and application of resources, procedures and monitoring, to enable the control and/or impact of seen and unforeseen events to be managed to best effect.

Within an effective control environment, risk is actually good for business. Under the right circumstances it can create a powerful commercial advantage for an organisation, however poor practice can cause risk to become a hazard.

Methods used to identify risks may vary depending on legislation, industry practice, culture or geographical considerations.

Once risks have been identified, they must then be assessed as to their potential severity of impact and to the probability of occurrence.

The control of high-risk business within the Jersey market is critical to its success as it affects all practitioners, no matter what their speciality. Risk is a subject on which there are numerous opinions ranging from who is actually classed as high risk to how they should be treated and monitored.

The Jersey Financial Services Commission and the Jersey government assist its finance industry in managing risk by issuing laws, orders, codes of practice and guidance. One of the most important pieces of guidance is the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism. The handbook advocates the use of the ‘risk-based approach’ to dealing with and classifying clients.

From a legal perspective, there are factors which will automatically result in Jersey service providers having to categorise the client as higher risk.

Risky business - how Jersey’s financial services providers risk rate business

Ian Murphy Risk, Governance and Compliance Director

T: +44 (0) 1534 740250

E: ian.murphy@hawksford.com

“From a legal perspective, there are factors which will automatically result in Jersey service providers having to categorise the client as higher risk.”

Issue 8 Winter 2013

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It should be noted that, whilst the regulator expects any businesses operating in Jersey to adopt a risk-based approach when categorising and managing business under their supervision, they do set the ‘bar’ at a certain level and insist that aspects will ensure some clients and their entities are automatically classed as high risk.

In determining a risk assessment for a customer, the presence of one factor to consider that might indicate higher risk will not automatically mean that a customer is higher risk. Equally, the presence of one lower risk factor should not automatically lead to a determination that a customer is lower risk.

There are a number of factors that cause a client to be classed as high risk, which include the client not having been met face-to-face, association with a sensitive activity, association with a sensitive jurisdiction or having a split board of directors, for example.

Jersey companies are faced with more business from higher risk jurisdictions than ever before. Wealth is increasingly coming from the BRICS areas and this often brings greater risks in terms of background of client and source of wealth identification.

In addition to the regulatory expectations, we are likely to see costs increasing due to the introduction of initiatives such as FATCA. Intervention by US tax collectors is likely to be just the start of what is going to become a global phenomenon as other jurisdictions join in the race. Simply having a connection to the US may mean a client being classified as high risk.

Whilst it is understood that competition is healthy and can benefit the client, the industry is starting to see some firms giving quotes that can be difficult to match, given the risks involved and breadth of work to be conducted. Whilst this may be an effective method of securing business in the short term, in the long term it can create problems and could result in a drop in standards.

If the regulator becomes aware that a business is providing services to clients at a potential loss, it can draw two conclusions. Firstly, the business is not fully aware of the risks and scope of work to be undertaken and secondly, it is cutting corners to ensure the relationship is run at a profit. If the regulator finds either to be true, a business may find itself in serious trouble.

Everyone at Hawksford is encouraged to manage risk, with the risk, governance and compliance team having oversight. The team comprises 12 individuals who ensure conformity to the requirements of the legislative framework. They report any material findings to the board of directors.

We conduct business risk assessments and document the risks associated with the conduct of business within a corporate risk matrix. Each risk is assessed for probability and impact. We have policies, procedures and contingency plans in order to mitigate material risks.

The ultimate responsibility for risk management, however, lies with the board of directors.

The reputation of any business is the most precious asset it has. This is certainly true of a financial services provider such as Hawksford. We need to protect our reputation at all costs and excellent client service, combined with good effective risk management, is the key to this.

Issue 8 Winter 2013

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Most developed countries are struggling with the effects of the global economic slowdown that followed the global financial meltdown. The economic slowdown has vastly worsened countries’ fiscal positions, tax revenues have fallen yet state expenditure has risen. The highly publicised consequences have been very large fiscal deficits leading to greatly increased borrowing to fund the ongoing deficits.

I believe that many countries will not get their spending into balance until the end of the decade and by then will have levels of state debts, which are unprecedented in peacetime. For the first time ever, there are major doubts about the sovereign debts of many G8 countries, worsened by the structural faults of the euro.

Yet, as the IMF reported in 2009, both developed and emerging countries are facing substantial changes as a result of big demographic changes, falling birth rates and many people living much longer because of great improvements in healthcare and nutrition.

These major demographic changes will affect their societies, economies, their public services and finances, yet the response of governments to this has been weak to date.

An increase in the older population affects the dependency ratio and increases the costs of pension, social care and healthcare. As a result, the costs of public services will rise greatly over the next decade and beyond and will, if left unaddressed, produce a big increase in state costs.

Many states, even if they eventually succeed in getting their budget overspending in control, will be left by the end of the decade with massive levels of debt. With such high debts, there is little room to increase state borrowing to pay for the additional costs of ageing.

What should be done? First of all, governments need to face this issue now, assess its significance and start a debate with their societies of what will need to change. This has not happened, and the reverse is occurring in some countries who want to pretend that the retirement age can fall, rather than accepting it will have to rise.

It is unlikely that the additional costs of an ageing society can be paid for by increased taxation if the economies of these countries are to be competitive. So this means there will have to be a reconsideration of both what the state does and what individuals and families will do in the future.

To most, it is apparent that if people are living much longer, they cannot expect to retire at the same age as their parents did,

for who is going to pay for their pensions? So ensuring there will be work for older people will require a consideration of attitudes and labour market performance. Next, there are three big costs of an older population: healthcare, social care and income support. All states need to look at these in the round and rebalance them, with the state covering some risks and costs and individuals covering others.

As part of this, governments and societies will need to consider the intergenerational effects. It is neither fair nor realistic to think that the younger population in work or employers will be able to pay for all the costs of a much larger and much older population.

On the positive side, we all recognise that there are benefits in having more years of life, particularly if we have more healthy ones. But this will challenge not just our governments, but all of us as individuals and societies, to think how we manage the big social, economic and fiscal consequences of this great change.

Ageing populations; boom or bust?

“It is unlikely that the additional costs of an ageing society can be paid for by increased taxation if the economies of these countries are to be competitive.”

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Lord Filkin CBE chair of the committee on public service and demographic change

Geoffrey Filkin’s career has ranged from senior manager, policy maker, politician and government minister focusing on how to improve public services. He was a chief executive in local government and then chief executive officer of a national organisation representing local authorities to government.

He was a government minister serving in the Home Office, the Department for Constitutional Affairs and the Department for Education.

Geoffrey has an active role in the House of Lords and has promoted improvements to the way it scrutinises legislation. He is an adviser to several companies, a trustee for three charities and is an Honorary Fellow of the Chartered Institute for Purchasing and Supply.

Issue 8 Winter 2013

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Jersey has developed a substantial international finance industry over the past 40 years and with the passing of time, inevitably issues of cross border probate have come to the fore. Many practitioners in the Island, as well as the Probate Registry, find that work in non-Jersey domiciliary deceased estates heavily outweigh the Jersey domicile estate work. This article will briefly examine international issues of wills, probate and succession in Jersey and we will also have a glimpse at some of the differences between succession in Jersey and England & Wales.

Will and estate planning in JerseySimilar to the position in England & Wales, Jersey law differentiates between immovable property and movable property. Devolution of immovable property is governed by the lex situs. Therefore, no choice of law is available and such a will covering Jersey situs immovable estate must conform with the legal formalities of the Island.

Movable property is governed by the lex domicilii with the concept of domicile also being broadly similar to that in England & Wales. In relation to movables, a will shall be valid if execution conforms to the internal law where it was executed, where the testator was domiciled, habitually resident or of which the testator was a national. Jersey Probate law goes even further whereby even if a will is not valid in accordance with any of the requirements outlined in the preceding sentence, it

will still be valid in respect of Jersey situs movables if it is executed in accordance with Jersey law, regardless of the personal law of the deceased. This ‘sweep up’ provision gives enormous flexibility to testators with assets in the Island and simplifies the probate process by reducing the need for affidavit evidence as to the law in relation to formal validity in the deceased’s personal law jurisdiction, lowering costs and demonstrating Jersey’s capability in international legal affairs. Notwithstanding the choice of law in respect of movables, a will may be challenged in the Jersey courts on the basis of its essential validity, for example, if it does not conform to forced heirship provisions in the country of domicile.

Therefore, a testator with Jersey movable estate has a choice as to whether or not to include his Jersey assets in a multi-jurisdictional will or if he would prefer a separate Jersey will. This should be considered on a case by case basis.

There is a strong case for minimising the number of wills due to the risk of inadvertent revocation. The availability of the Jersey ‘fast track’ probate procedure (see further below) adds weight to the case against many wills.

However, there are circumstances where it may be helpful to have a number of wills. It may expedite the probate process depending on the various locations involved: a Jersey will can proceed to probate without having to wait for probate in another jurisdiction. It may also make administration more efficient as the will is restricted to a smaller more ascertainable group of assets. Forced heirship under a testator’s personal law may be circumvented (however the estate may be open to challenge by the legal heirs). The testator may be afforded greater privacy with the contents of their Jersey will becoming public documents only in the Island and not elsewhere as would a multi-jurisdictional will.

International wills, probate and succession in Jersey, Channel Islands

“Although matters noted in respect of non-domiciliaries are similar to the law and process in England & Wales, there are significant differences for clients domiciled on the Island.”

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Jersey probate for non-domiciliariesIf a person dies domiciled outside of Jersey, owning movable assets in Jersey with a probate value exceeding £10,000, a Jersey Grant must be obtained. Where the value of the assets is less than £10,000, it is left to the asset holder’s discretion whether they insist on a Jersey Grant being obtained. To obtain a Jersey Grant, the Royal Court of Jersey requires the following:

• A Court sealed and certified copy of the original Grant and will issued by the Probate Court in the deceased’s country of domicile.

• An original or certified copy of the death certificate.

• If any of the above documents are in a foreign language, an official translation of each document into English is required.

• Confirmation of the net value of the movable assets in Jersey as at the date of death.

• The Probate Court fee and Stamp Duty, both of which are calculated on the net value of the estate in Jersey.

• The Executor/Administrator must attend the Royal Court in person to take the oath. Many Executors/Administrators of non-domiciliary estates will give a power of attorney to an agent in the Island for this reason.

• An affidavit of foreign law, provided by a lawyer practising in the deceased’s country of domicile may, in some cases, also be required. For example where:

• a Grant will not be issued in the deceased’s country of domicile; or

• the will or foreign Grant does not appoint an Executor; or

• the deceased died intestate.

Where a deceased person dies domiciled in England and Wales, Scotland, Northern Ireland, Guernsey or the Isle of Man and a Grant has been issued in the deceased’s country of domicile, there is a ‘fast track’ system available. In such cases, the documents required are more straightforward.

Differences between Jersey and England & WalesAlthough matters noted in respect of non-domiciliaries are similar to the law and process in England & Wales, there are significant differences for clients domiciled in the Island. Jersey has owed allegiance to the British Crown for approximately 800 years, yet it has a body of customary law which evolved principally from the customary law of Normandy. This civil law influence is still felt today, for example, with forced heirship. Some of the significant differences in wills, probate and succession in Jersey include the following:-

• A holograph will covering movable estate need not be witnessed.

• On execution, a will covering Jersey situs immovable estate must be read out loud to the testator in the presence of two witnesses, one of whom must be a Jersey lawyer.

• A will of Jersey immovable estate is not probated. Instead it is registered at the Public Registry whereby title passes to the beneficiaries. In contrast, a will of personal estate is probated and the estate administered in a similar way as any will in England & Wales.

• There is a system of forced heirship, called legitime, in favour of spouses and children. In practice however most married couples leave their entire estates to the survivor and legitime challenges by children may only occur if there is a family feud or a second marriage.

• Claims against an estate may be made within one year and a day of issue of the Grant of Probate;

• Jersey lags behind England & Wales in respect of equality as there remains a significant disparity between the treatment of widows and widowers in respect of immovable property. A widow is entitled to a life interest in one third of her late husband’s immovable estate, whereas a widower is entitled to a life interest in the whole, providing that a child was born of the marriage;

• Although the position is not yet equal between the sexes, Jersey has caught up with England & Wales in respect of same sex unions, with civil partnerships gaining the same legal recognition as those in England & Wales last year.

• Another step forward, in terms of equality, occurred last year, to the status of children. Until just last year, in respect of a male deceased, the term “descendants” referred only to descendants born within a marriage. The definition has now been expanded to include all descendants whether born in or out of wedlock.

• On intestacy, the statutory legacy for a surviving spouse in Jersey is just £30,000, which is in addition to the household effects, a half share of the remainder of movable estate and a life interest in the matrimonial home;

• A marriage in Jersey will not automatically revoke a will.

• Variations of estates are available in Jersey up to two years from the death but they must be made by application to the Court.

Jersey is often cited as a unique and inviting place and this is reflected in its wills, probate and succession business. The Island has established and builds upon its individual laws governing succession of Jersey assets and it has strong capability in international estate planning and administration, adding to its appeal for those seeking a safe place to hold their wealth.

Donna Withers Probate Manager Hawksford

T: +44 1534 740215

E: donna.withers@hawksford.com

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All cantons have the right to levy taxes, although the federal government has an exclusive right to levy certain taxes including value-added tax and withholding tax. As a consequence, Switzerland taxes both at the federal and the cantonal/municipal level.

Taxation of income at federal and cantonal/municipal levelIncome tax is governed by federal and cantonal laws. The cantons are authorised to levy the tax, while municipalities can also set their own income tax rates to the extent that they are authorised by the respective canton.

Taxation of the individual taxpayerIndividuals with a permanent or temporary residence in Switzerland are subject to federal and cantonal/municipal tax. The tax scales are progressive, recognising family status, children and faith. Individuals are taxed on their worldwide income, with certain exemptions for business carried out abroad. The highest income tax rates for a single person, without children and excluding church taxes can vary from 22 per cent to almost 45 per cent, depending on the canton.

Taxation of corporate taxpayerCorporations with their registered office or effective place of management in Switzerland are subject to federal corporate income tax, which is a flat 8.5 per cent, and also to cantonal corporate income tax, as well as tax on equity (paid up capital and reserves). The basis of taxation is again worldwide income, with exemptions for business carried out abroad. Corporate income tax rates across the different cantons can vary from 12 per cent up to 25 per cent.

Wealth taxWealth tax is only levied at the cantonal and municipal level and is based on the taxpayer’s worldwide assets. Taxable property includes real estate, movable capital assets, redeemable life and annuity insurances and business assets. The wealth tax charged by the various cantons is normally within a range of 0.1 per cent to 1 per cent.

Gift and inheritance taxThe Swiss federation does not currently levy any inheritance or gift taxes at a national level. However, with the exception of the canton of Schwyz, all cantons levy inheritance tax. The canton of Lucerne has waived the right to levy gift tax, however gifts made during the last five years before death are included in the inheritance tax calculation. Gift and inheritance taxes are mostly progressive and are based on the degree of relationship between the donor/deceased and the beneficiary and the amount received by the latter. All cantons exempt spouses from gift and inheritance taxes, whilst in most cantons direct descendants are also exempt.

Gift taxesTransfers of wealth between living persons are subject to gift tax at cantonal level. Gift tax on movable property is levied by the canton where the donor is domiciled at the time of the donation. Gift tax on immovable property is levied by the canton where the property is located (lex rei sitae). Gift tax rates for beneficiaries who are not related to the donor can vary from 0 per cent up to 50 per cent depending on the canton.

Inheritance taxThe estate on death is subject to inheritance tax at cantonal level. The right to tax lies with the canton of the deceased’s last domicile, with the exception of immovable property, which is taxed at the place where it is situated. The beneficiaries of the estate are liable for the tax. An inventory of the estate must be made at the death of the deceased, which serves as a basis for the assessment of inheritance tax. Inheritance taxes for beneficiaries who are not related with the deceased vary from 10 per cent up to 50 per cent.

ConclusionThe majority of Switzerland’s taxes are set at a cantonal and municipal level, which leads to very significant variations in effective rates of tax depending on where the taxpayer is based. For this reason it is recommended that anyone planning to move to Switzerland, or considering setting up a business there, should carefully consider their likely tax exposure before choosing a location.

An overview of the tax rates levied in the Swiss cantons

Issue 8 Winter 2013

Marc Renggli Senior Lawyer Hawksford LSS GmbH

T: +43 (0) 41 500 3874

E: marc.renggli@hawksford.ch

Switzerland’s tax system reflects its federal structure; it has 26 cantons and approximately 2,500 municipalities.

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Many UAE employers are not aware that legislative changes in Europe and elsewhere can have a material impact on their business. As most UAE employees are expatriates, their employers often need to consider the labour laws of the employees’ home countries as well as the labour laws of the GCC country in which they work.

An example of such a legislative change is the new workplace pensions laws in the UK, which can affect British expatriates working in GCC companies. This new law will affect some GCC employers, and may provide fresh impetus to the debate about the provision of pensions for all expatriate workers in the region.

UK workplace pensions lawsUnder the new laws, which come into force on a date between 2012 and 2017 (depending on the size of the employer), qualifying British workers must be automatically enrolled into a pension scheme when they start employment. The law specifically allows the employer to make deductions from an employee’s salary for the purpose of making contributions to the scheme. Further, the employer, as well as the employee, must make contributions to the pension scheme.

UAE companies will now need to consider whether they are affected by these laws. In determining whether an employee is entitled to automatic enrolment into a pension scheme, the UK courts will apply their own labour laws rather than those of the GCC country where the employee is working. Thus, even if an employee is employed by a local entity in accordance with the rules of the local labour laws, they could still be considered by the UK courts to be employed by a UK employer.

The new pensions laws apply to any employee who is, according to UK law, ordinarily working in the UK. If a worker who was employed by a UK company intends to return to work for that company at some date in the future, then they may be considered to be ordinarily working in the UK – even if they are in the GCC for a fairly long period of time.

Whilst many employees who are on short term secondments or placements to the GCC will remain enrolled in their company pension scheme, those employees on longer term secondments may have been moved to contracts with the local employer and no longer be in a pension scheme. Yet whilst the contract may be with the local employer for the purposes of local labour law, there is a risk that the UK courts consider that they are still employed by the UK employer. GCC employers will need to consider whether they need to provide pensions for such employees.

Further, even where a British worker on a secondment or placement to the GCC is enrolled in a pension scheme, the employer will still need to consider whether the administrative requirements of the new legislation are complied with. There are strict rules on the detailed information which must be provided to affected employees about their pension rights, and the timescales within which the information must be provided. Where an employee exercises their right to opt out of the pension scheme, they must be automatically re-enrolled in three years’ time.

The law on this is not clear, and employers should take advice if they are in any doubt whether their employees are affected. The UK Pensions Regulator has the power to issue fines on a daily basis to any employer who fails to comply with the legislation. Employers should also note that if the pension scheme is set up before their staging date (the date on which the laws apply to their organisation) then the employer has more flexibility when deciding where the pension scheme should be established.

Pensions in the GCCThis may be a good time for GCC employers to consider more generally the issue of providing pensions for expatriate workers. In addition, the Dubai Department of Economic Development has been in discussions with the World Bank, and it looks likely that legislation will be introduced at some point. Whilst there is currently no detail on what this legislation might look like, there is a possibility that it will introduce mandatory pension provision

for employees who are not currently covered by a pension scheme. Employers wishing to design their own pension schemes may benefit from having those schemes in place before legislation is introduced.

The benefit of designing a pension scheme for expatriates is that it can address existing local statutory entitlements to end of service gratuity, something which existing international pension schemes are unlikely to do. The rules of the scheme would need to be carefully worded to ensure that employees do not inadvertently become entitled to a double benefit, claiming both the pension and the end-of-service gratuity (unless of course it is the intention of the employer to offer both benefits). Employers should not make a pension scheme available to their employees without first taking advice on the compatibility of the rules of the pension scheme with local labour laws.

Pension schemes are a valuable benefit to employees, from senior management to more junior employees. People are living longer, and their expectations of a comfortable retirement require careful planning. The provision of pensions can be a valuable recruitment and retention tool, particularly as the economic outlook within the Gulf continues to improve and employers start to hire staff (including those from local competitors).

There can also be financial benefits for both employer and employee. Since pension contributions are not considered to be part of salary for the purposes of calculating the end-of-service gratuity, the employer can award additional benefits to senior employees without significantly increasing their liability for the gratuity. From the employee’s perspective, they benefit from the security of knowing that their pension is safe.

Pension planning for expatriates in the GCC

Rebecca Ford Partner

Judith Donnelly Partner Clyde & Co LLP

Trustee of the Year 2013 – Julian Hayden

Trust Company of the Year 2013 – Runner up

RUNNER UPMAGIC CIRCLE AWARDS 2013

TM

www.hawksford.com

Contact details JerseyHead OfficeHawksford GroupHawksford House15 EsplanadeSt HelierJerseyJE1 1RBT: +44 (0) 1534 740000

SwitzerlandHawksford LSS GmbHTalacker 50Zürich8001SwitzerlandT: +41 (0) 43 500 3870

United Arab EmiratesHawksfordPO Box 340505, Unit 1307JBC 5, Jumeirah Lakes TowersDubai, United Arab EmiratesT: +971 (4) 420 3375

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Rebecca Stannard Marketing and Communications Manager

T: +44 (0)1534 740182 E: rebecca.stannard@hawksford.com

www.hawksford.com

Hawksford Group (and Hawksford International) are the Registered Business Names of Hawksford Trust Company Jersey Limited which is regulated by the Jersey Financial Services Commission.

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WINNERMAGIC CIRCLE AWARDS 2013

TM

WinnerOwner-Managed Trust Team of the Year

2012

Proudly recognised as...

Best offshore trust company – Jersey, Guernsey

and the Isle of Man