Investment product for ex-pats exempt from tax

One reader who wants to buy a pension, but is unable to, is Ms S who has been living and working in Germany for the past seven years. Her marriage recently broke up, and although she wants to return to the Republic her job is an excellent one and she plans to stay put for a few more years. "My German pension which I will receive at 65, will be very small," she writes, "but I will be receiving £60,000 soon as a settlement from my ex-husband. I would like to invest it in an Irish pension scheme. The only other investment I have is a 10-year, with-profit endowment policy with Standard Life into which I have been paying £100 a month and which matures in May 2000."

Ms S (48) cannot buy an Irish-based pension plan as she is not earning or paying tax here. She can, however, buy a personal pension or the equivalent of an AVC to top up an occupational scheme in Germany, the benefits of which would be paid to her here if she moved back to the Republic after retirement.

However, there is an international investment product which works very like a pension fund that was created just for ex-pats like our reader who are working abroad and intend to return to the Republic at a later date. Sold by Eagle Star International and Irish Life International, these products are tax exempt roll-up investment funds (in the same way Irish-based pension funds are tax exempt) and available to expats who have been based outside the State for at least six months.

The attraction of this product is that your investment fund can be returned here and whatever growth achieved while outside the State can be encashed tax free. If the fundholder decides to keep paying into the fund once they get home, only three-quarters of any growth achieved in the Republic will be subject to the standard tax rate at the time, and will only be payable at maturity/retirement. Though this product does not carry the tax deduction pension contributions enjoy, it is not subject to the funding limits that apply to pension contributions, that is, 15 per cent of net earnings.

Ms S could theoretically invest all of her £60,000 into a product like this and use it as a pension substitute until she retires, but her wisest course is to consult an Irish and a German financial adviser, both of whom will explain the merits of both the Irish and German pension options and the relevant tax situations.