As an expatriate living in Sweden and are planning your financial future, there will be several goals or objectives you will need to consider, especially if you’re uncertain on what local benefits are available to you, and if you’re eligible for them.
A very topical area is pension planning. Are you a member of company pension scheme? Can you take out a local pension policy; do you know what options are open to you?
Why is saving for your future so important? Well, as the developed world population ages this has and will put increasing strain on state benefits, and certain types of employer sponsored pension schemes.
More and more emphasis is being placed on the individual to take ownership of their own retirement planning and provision.
To get there, you need to put away a certain percentage of your income now and, as a general rule of thumb you should save about half your age as a percentage of your income. So if you are starting to save at 35, you would need to put aside 17.5% of your salary for your retirement3.
Of course, all financial planning issues will very much depend upon your personal circumstance and future goals. That’s why it’s important to take independent advice from a fully regulated financial adviser.
Sweden is often thought of as a very high tax environment, and in some respects that is true, with income tax rates reaching nearly 60% and capital gains Tax at 30%.
That said it is possible to save or invest money in a very tax efficient manner. This can be achieved through pension scheme, or as is common for an expatriate, by using a Kapitalforsakring or ‘capital insurance’ policy.
These polices can be set up with regular contributions, one-off payments or a combination of both. They can often hold a range of different investment funds and assets.
There are a number of local Swedish and international insurance companies offering such polices, built specifically for the Swedish market typically based in other EU jurisdictions such as Ireland, the Channel Islands or Luxemburg.
Capital insurance policies can be set up with regular contributions, one-off payments or a combination of both. They often hold a range of different investment funds and assets.
One advantage of an Irish or Channel Island policy is that no tax is paid by the insurance company within the fund, allowing potential for a greater ‘roll up’ (or growth) on the underlying investments.
In Sweden there is an element of tax payable (called yield tax), and this is based on the value of the policy at 31st December each year.
However, this is very modest compared to income tax and capital gains tax rates, and in 2011 would have been approximately 0.75% of the policy value.
Although capital insurance policies do not receive tax relief on contributions paid in, the potential for the benefits to be taken free of tax are very attractive for those wishing to save for their future. Other key features of an international capital Insurance policy are the potential portability if one moved to another country and control over the currency of the policy.
Let’s look at an example:
John, a 45 year old UK citizen moved to Sweden in 2010 on an initial 5 year contract with a leading telecommunications company. He earns SEK 600,000 a year. He loves life in Stockholm and may well extend the contract if the opportunity allows.
John has decided he is able to save SEK 5000 a month for 15 years towards his retirement goals. He had planed to retire in the UK; however this is not certain as he is enjoying life in Sweden.
Following a review of his circumstance, John is advised to consider regular monthly savings into a capital insurance policy offered by an international insurance company.
Reasons why/key benefits:
He is currently a Swedish tax resident therefore needs a Swedish tax compliant product.
As he has taken out an international insurance policy John pays the annual yield tax directly, and therefore he benefits from gross roll up on his investment.
The term of his investment can be selected to tie in with his intended retirement date (e.g. Age 60).
He can potentially access some of his savings within the 15 year term should it be needed in an emergency or his plans change.
He has flexibility to choose how he takes his benefits either as 100% cash, and/or as an income.
If he retires and accesses the benefits of the policy in Sweden, they will be tax free.
If he returns to the UK and takes the policy benefits, he can use various reliefs that can reduce or mitigate any tax UK income tax liability.
As there is no requirement to repatriate the policy benefits at maturity, he has the option to leave his savings invested offshore, so potentially deferring paying UK tax until he is a non- or basic rate tax payer.
Life insurance contracts benefit from tax privileged status in many countries around the world. So should John take another overseas contract (e.g. Spain) he may find that he can continue to benefit from a tax advantageous policy.
International capital insurance policies often have the ability to start savings in one currency and then allow a switch in the future should circumstances change. Therefore John could start saving in SEK but could change to GBP should he return to the UK.
If John dies before taking his benefits 101% of the policy value can pass to his dependants.
A capital insurance policy offers exciting opportunities whether your goals be retirement related, or if you wish to invest for other reasons such as education fees, or simply maximising returns from your savings.
AES International is a financial services company that specialises in helping expatriate clients with their international cross-border financial needs. Our Private Client Advisers help Expatriate professional clients from several offices throughout Europe and the Middle East. Our Private Client Advisers in Scandinavia are based in central Stockholm.
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For an informal no obligations consultation to discuss your personal situation and how we may be of service to you please contact Chris Grubb: +46 70 6571166 or Andrew Edwards: +46 73 9844287 or email [email protected].
Article sponsored by AES Insurance