Expats may believe they have saved enough cash in their pensions to fund a comfortable retirement only to find they have miscalculated how long they will live.
New research highlights that a company based in one country may not take lifestyle factors into account in other countries that could lead to underfunding pensions that could leave expats without enough cash to last their retirement.
This basic error could mean leading multinationals are tens of billions of pounds short in their calculations.
The problem was pinpointed by research across workplace pensions in 26 countries around the world by financial analysts LCP.
One of the key factors the research uncovered was underfunded pensions are forcing expats to give up work later, and this is leading to longer life expectancy.
Because life expectancy varies between countries depending on lifestyle and health care, many expats could find they do not have enough money to last until their deaths, says the company.
The longevity gap between countries can be as much as five years even between developed countries.
To solve the problem, the firm suggests that multinationals with expat workers should have a consistent mortality factor built in to their pension schemes rather than basing their figures on a single rate which often depends on the country where the company is based rather than where the places where employees live and work.
The study also revealed that a common theme worldwide was employees felt their pensions were underfunded.
LCP partner Phil Cuddeford said: “This research should be a real eye opener for leading companies around the world. Instead of concentrating their pension efforts on one location, they need to take a global perspective.
Global perspective needed
“Just because a pension fund may give an expat a comfortable retirement in one place does not mean that the money is enough for another expat in another location.
“Companies need to take account of longevity in more than one country. If they don’t, they may find that their pension liabilities weigh too heavy on their balance sheets and may be unsustainable.”
The report looks in detail at problems companies have funding pensions.
Many employees blame themselves for under providing for their old age but it’s not their fault, says the report.
For instance, the difference in longevity between France and Germany is five years, so a company funding a pension in one country could unintentionally sell short expats living and working in the other country.