Foreword:
A pension fund is an arrangement under which an organisation, such as a large multinational corporation, makes financial provisions for its past, present and future employees as well as its senior executives. Although pension funds act as vehicles for the payment of pension monies they are also used to pay general benefits to employees and executives.

Structure of an Offshore Pension Fund
A pension fund will be structured as a discretionary trust. The employer-company will be the settlor and its current, previous and future employees will be the discretionary beneficiaries. These 'beneficiaries' are generally referred to as members of a scheme.

There will be a trust deed which sets out the terms under which the pension contributions and / or the benefits are to be held. Often the terms of the trust are referred to as rules. There will, of course, be a trustee who will be given certain powers which will not be dissimilar to those given to trustees of private trusts.

If the trustees are located in an offshore centre, and the rust is governed by the laws of that centre, the pension fund will be considered to be resident in that centre and therefore 'offshore'

ROLE OF THE VARIOUS PARTIES ON AN OFFSHORE PENSION FUND

The Employer
In addition to creating the pension fund, the employer would also be responsible for making sure that the correct amount or contributions are pain on time to the trustees that he notifies the trustees of new members to be added to the pension fund and that he also advises the trustee of any amendments which are required to the rules of the fund (as set out on the trust deed).

The Trustee
The duties or a pension fund trustee will generally be similar to those which are expected of the trustees of a private trust.

In an onshore pension fund it is usual for there to be a number of co-trustees, most of whom would be provided by the employer. Usually, many of the co-trustees would be senior executives of the employer and as a result, the employer will usually be able to exert a certain amount of control over the assets of the fund and distributions which are made. Such a satiation can create a possible conflict on interest. For example, if the employer provides some or most of the board of trustees, those individuals may be expected to act in accordance with the interest of the company rather than in the interest of the beneficiaries of the pension fund.

Offshore pension funds, on the other hand, tend to have a sole corporate trustee appointed who would act closely with the employer but at the same time provide an independent viewpoint. A corporate trustee should, in theory, represent the interest of the employees to a greater extent than a trustee who is closely associated with the employer.

If the employer does wish to have representation on the board of trustees of an offshore fund, the representatives of the employer would usually act alongside the corporate trustee whose role would be to maintain impartiality.

The Administrator
The trustees would not always perform the day-to-day operations of the offshore pension fund and often you will find that an administrator will be appointed to assist with the day-to-day running of the fund. In such cases the administration would provide the administration services which the trustee would otherwise have to undertake, such as the collection of income and dividends from the underlying investments, the production of valuations o f the fund and the maintenance of pensioners records and the pension and benefits paid.

Indeed, in view of the size of the assets under management, a committee may often be appointed which comprises a number of different investments managers who all participate in the diction making process.

The Actuary
The actuary is the person who will be appointed to calculate the amount of the contributions which are required to be placed into the fund to cover the expected distributions to employees and pensioners. After making his initial calculations, the actuary would continue to review the find and its assets to determine whether any alterations are required to the level of funds going into or coming out of the fund.

The Accountant
An accountant would be appointed by the trustee to prepare the financial statements of the pension fund and to fulfil any other accounting requirements which may be required either under statute (i.e. under the trust law of the centre or under specific pension legislation such as that which is in place in Bermuda) or in accordance with the rules of the fund.

POSSIBLE ADVANTAGES OF OFFSHORE PENSION FUNDS

Taxation
The fund would be subject to the local taxation rules of the centre where the fund is resident. The residence of a fund would usually be determined by where the trustees are resident and if the trustees are located in an offshore centre the fund would, in general terms, be subject to the local tax regime of that centre. As offshore centres are either low or not tax centres there are, therefore, considerable tax planning opportunities for accompany locating a pension fund in an offshore jurisdiction.

A further possible tax benefit provided by offshore centres is that distributions out of the pension fund to employees or pensioners would not be subject to withholding tax at source. As a result, employees or pensioners can receive gross distributions from the fund. The local taxation situation of the recipient might, of course, mean that they will be assessed to tax on such receipts in their country of residence but if they also living in a low tax location, there would be clear advantages to receiving a pension which has not suffered tax at source.

Regulation
There is very little regulation at the present time concerning the provisions of offshore pension fund services. Indeed, there is also a lack of regulatory controls in onshore centres as well.

This lack of regulation means that an offshore pension fund will be able to take a more flexible approach to the investment of the assets and also to the payment of pensions and benefits.

Some centres have implemented measures which prevent corporate trustees form acting in any typo of trust (including pension funds) unless they are licensed locally. This licensing requirement does at least provide some degree of control over those who can act as trustee of an offshore pension fund.

Contributions
Usually, there will be no restrictions on the extent of the contributions which can be made into an offshore pension fund. Similarly, there will not usually be any restrictions on the amount of benefits which an offshore pension fund can distribute to its members.

Uniformity
Offshore pension funds provide an opportunity for the employer to make uniform provisions for all its employees regardless of where those employees work or reside. Such provisions can also be made regardless of the pension laws or other local requirements which may be in place where the employer or the members are based.

Investment Strategies
Unlike onshore pension funds, there will not generally be restrictions imposed on an offshore pension fund in relation to the investment strategies which it may undertake. Nor in usual circumstances, will there be any restrictions on the types of investments such a fund may select for inclusion in its portfolio. Offshore pension funds can. Therefore, expose a greater proportion of its assets in speculative investments which creates an increased opportunity for capital growth as well as higher income return.

Currency Protection
Offshore pension funds can usually pay pensions or benefits in any major currency. This can protect the recipients from currency variations which will occur

Benefit Packages
An offshore fund could also be established to pay employees fringe benefits which arise in relation to their employment. It is usual for benefits, such as incentive schemes and share purchase options, to be restricted by onshore regulations but an offshore scheme would not be subject to such restrictions, thus enabling the employer to make greater benefit provisions for his employees than he could through an onshore fund.

Top-Up Provisions
It is usually possible for an employee of an offshore pension fund to make contributions into the fund to top up the contributions which his employer has made on his behalf, thus providing him with a larger pension entitlement on his retirement. Often the percentage amount which an employee can contribute will be greater than that which is permissible in an onshore fund.