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Viewing posts from: November 2000

Why a Pension audit is vital for your wealth Part 1

By David Hattersley
This article is published on: 25th August 2015


I have been trained in the UK and have been specialising in Pensions since 1987. As well as keeping up to date with the subsequent (and numerous) changes in legislation, I also have a good understanding of the variety of pensions offered since then. In this article I am concentrating on Pre-Retirement Planning ie. those people that have yet to take their pensions. With ever changing careers in private industry and the end of the idea of “jobs and pensions for life”, which was part of the revolution in the late 70’s, most people acquire a number of pensions and different types of pensions over a period of 30 to 40 years. In some cases, they are not even aware of their entitlement, in particular, Defined Benefits Schemes to which the rules changed from the late 80’s (my Father in Law being a case in point who was not aware he was entitled to benefits under such a scheme until well into his retirement) and Contracting Out of SERPs plans.

Since the Finance Act of 2004 pensions have come under that legislation. The general wording of this legislation was “Pensions Simplification”. As advisers at the time, we knew full well that this would not be the case and we have been proven correct, with the subsequent attacks on pensions by a variety of governments seeking to raise revenue and reduce tax advantages at the same time.

Since moving here to Spain, I have come across many clients who were not aware of the benefits that they were entitled to. It has required a vast amount of work tracking down both providers and employers that no longer exist. In some instances it has proved to be fruitless, but others have benefited from plans that they are not aware of. That is the first stage of my role as a Financial Adviser, which is to question a potential client’s work history and seek full details. That however is the easy bit as the options available at retirement have been given greater flexibility, but the irony is that independent advice is hard to come by in the UK unless you are prepared to pay a fee on a time cost basis.

The first question is, do you plan to become tax resident in another European country? For those that plan to still maintain a home in the UK (even as a holiday home), that is further complicated by ever changing rules regarding residency in the UK vs tax residency in the chosen country.

What do you need to do before you leave the UK and become tax resident in an EU country? A simple question perhaps, but the tax free lump sum available in the UK now referred to as “Pension Commencement Lump Sum” or PCLS (one can see the tax free status of that being restricted in the future) is liable to be taxed certainly in France and Spain once you become tax resident. There are legitimate rules reducing this, but once again, these need advice. How does one therefore get your PCLS to take advantage of the current UK tax free status, without having to take the pension too? Perhaps you want to stagger your pension income as a result of continued part time work or “consultancy”. Many of my generation want to still work past normal retirement age, but at a slower pace.

Currency also has an impact, within the last 5 years the £ to the € has gone from 1.07 to 1.42 Euros. If one thinks that will be maintained, consider that in 2002 when the Euro was launched the £ to Euro was as high as £1 to 1.56 Euros. The impact to those that budgeted on that basis over the ensuing 8 years was detrimental to their wealth, so how does one hedge against currency fluctuation?

Does all your pension come from a UK source or have there been earnings and pension entitlements from overseas employment? Do you have a mixture of Final Salary schemes and personal money purchase pots? Is there a need to consolidate these, or treat each individual arrangement on its relative merits?

With recent legislation, trustees of Final Salary schemes (Defined Benefits), with the exception of transfers less than £30,000, now need the involvement of a fully qualified UK financial adviser who has passed his recent exams. This is all very laudable but how can that adviser be aware of the tax rules in your new country of residence? In any analysis carried out by a Spectrum Partner, it is vetted and checked by a Spectrum Fully Qualified Chartered Financial Planner, and if need be by a UK Financial adviser if part of your pots are as above. It is important to note that no UK Government funded pension eg. Civil Service can be transferred.

Then there is the reduction in the Lifetime Allowance, the passing of your pension pot to your chosen heirs and beneficiaries, the correct selection of good quality properly regulated funds and fund managers dependant on an individual needs, regular reviews as needs change, and the changes to the amount one can take on an annual basis due to recent pension flexibility rules. These are all areas that are vital to consider.

Even after the audit, and a decision to potentially transfer part or all of one’s pots, care needs to be taken in the selection of the QROP/SIPP Trustee and the jurisdiction that it comes under.

Having mentioned the above it may be in some cases that not all your pension pot should be considered for a transfer.

It may be beneficial to consider the purchase of a Lifetime Annuity from a UK provider as these have substantial tax advantages over pension payments in Spain. This will have to be carried out before one moves abroad on a permanent basis and, as stated earlier, for every potential client advice is given on a case by case basis.

In many cases, a lifetime of pension saving can result in funds being equal to or greater than the value of a property purchased abroad. Should one not take the same planning, care, advice and due diligence when planning your retirement for an income that may have to last 30 years? That is where we can be of help.

FACTA: the unintended consequence for Expatriate US citizens

By David Hattersley
This article is published on: 13th May 2015


I have an affinity with the USA, my first manager during a part time job with a UK insurance broker in the 1970’s was an American, a Malcom J Clifford who drove around in a red E.Type. Then, my first full time sales roles in the UK was a happy 8 years spent with SC Johnson, the US company based in Racine in Wisconsin. My first client in Spain was and is an American lady married to an Englishman who both worked offshore before retiring here. And now I have my first grandchild, born in the US, of English parents with my son-in- law working there.

It seems that there are an awful lot of “firsts” that I have to be grateful for, that emanate directly and indirectly from ties with the USA.

On a recent business trip to San Sebastian to look for potential expat clients, the majority seemed to be from the US, not an Englishman in sight. So for a potential niche market a seed was planted.

That was until I researched FACTA and began to understand its complexities, and in many ways its injustices to the individuals that retire or work abroad as US expatriate citizens.

The United States is the only OECD country in the world to tax its citizens based on their citizenship, not residence. It also, as an OCED country, has the fewest percentage of citizens living abroad (according to the US State Department, 7.6 million US citizens work or live abroad out of a population estimate in 2015 of 320,206 million which is only 0.023%). Help might be on its way though via the US Senate Committee on Finance. Hatch and Wyden released the Public Input on Bipartisan Tax Reform (see link below).

The interesting thing to note was that up to the final submission date of the 29th April a total 1,400 submissions were made of which 347 submissions were submitted in relation to “International Tax”. This came second only to an “Individual Income Tax” figure of 448.

Whilst the principle was fine, especially in relation to those that tried to dodge paying tax of any kind, anti terrorism, trafficking et al, the majority of middle class US citizens abroad were, and are, honest citizens, paying tax in their country of permanent residence whilst still trying to desperately retain their American citizenship. The rules are both complex and numerous, and it is easy to fall foul of these, and be penalised. There is a major differential between “large body Corporate” that gets many tax breaks vs the individual and or small company.

The majority of submissions started with “I live in or have lived in for a number of years and paid my taxes in”.

On reading reports on the impact on this legislation I have come to realise that the

“unintended consequences” have been numerous, which is strange for a country that promotes that it is part of the global economy, and believes in freedom of movement etc, democracy and fairness.

There are many different scenarios so I will just highlight a few that have major consequences for individuals living abroad;

  1. Married couples where one is a non US citizen and not recognised by the US, paying taxes in the country of residence, and the US citizen having to consider giving up their US citizenship because of the losses sustained by being taxed by the US as a single person.
  1. Onerous paperwork via FACTA, that is not fully understood with very few choices of locally based small accountancy firms that understand it, yet still paying legitimate taxes in the country of residence and having to pay for the filing of local resident taxes too.
  1. The ability to save for retirement, because local pensions do not comply with US regulations on pensions, and could be subject to tax both on the way in and on exit.
  1. Currency “ghost gains” applied by the US IRS on a capital gain. Whilst large companies can use a “functional currency”, individuals have to report in US$. If an American bought a primary residence for 200,000 Euros when the exchange rate was 1 EURO = $1.50 ( ie 133,333.33 US$ ) and they sell the same home for 200,000 Euros when1 Euro = $1.00, ( ie 200,000.US$ ) they would have a US taxable gain of $66,666.66 in phantom profit. This same example applies to mortgages and a variety of other investments. In many cases Americans have to pay taxes on these exchange rate gains but cannot use the losses if they occur.
  1. The substantial reduction in the number of foreign institutions in the country of residence offering banking, savings and investments, that are compliant to the country of residence. This is due to the increase in both legal and compliance costs of these institutions of complying with FACTA. But, a US citizen who is resident in a foreign country cannot open a US sited bank account or investment either.

These are just a few examples, and whilst we cannot change the rules or the reporting procedures, we can at least provide limited financial advice, a range of products and services appropriate to the country of residence to which we operate in, and investment advice that is locally compliant, written in English and available in multi currencies.

Scottish Independence: A major faultline exposed in the UK?

By David Hattersley
This article is published on: 15th September 2014

Whatever the outcome of the referendum on September 18th, the willingness of people to take risks to free themselves from Centralised Government (ie. in this case, Westminster) has exposed the growing dissatisfaction with large centrally controlled government. This would still apply to the UK, even without Scotland. No doubt there will be intense negotiations over the coming months in relation to the outcome of the referendum.

With the UK elections due soon, this could give rise to the same dissatisfaction in the UK, particularly if it is seen that the Scots get greater freedom. As a result, the UKIP could gain some seats based on their anti-EU stance, or there could be a change in the balance of power in key seats. The potential then arises of a coalition, but how will that be formatted? Will there then be a referendum on an exit from the EU?

So, where does this leave investors? The UK has been seen as a “safe haven“ for investors and this is bound to change, at the very least just in perception. Markets do not like uncertainty and this inevitably leads to greater volatility. Currency, bonds, gilts, property and equities will all be affected.

A globally diversified portfolio, in a wide range of asset classes, will help spread the risk compared to a UK-biased selection. This is where Independent International Financial Advice is vital! Protection of wealth can only be achieved where all asset classes are considered as part of a portfolio.

Spectrum Economic Forum Davos 2014

By David Hattersley
This article is published on: 20th January 2014

Having spent four days on a wonderful Spectrum IFA Group Annual Conference I have now had time to read again the scripts of the presentations and reflect on their impact on investment strategies. Apart from the fact it was by consensus of the other Partners one of the best conferences to date, helped by the friendliness of the staff at the Sheraton Hotel, and the stunning location, the presentations by the investment managers we use were of great interest.

When you consider the diversity of styles and approaches from the likes of Jupiter, BlackRock, Henderson / Gartmore, JP Morgan and Kames, it became very apparent that they all held similar views with regard to the markets and the potential area’s for growth for 2014 and beyond. This was enforced by a question and answer forum near to the end of meetings with all of them present to answer a variety of questions. The major message was that any investment holding substantial cash was no longer an option both now and for the foreseeable future. Whatever a client’s attitude to risk was, and their requirement for either real income, capital growth or both, a solution was available. But rather than a single asset class, spread of assets on a global basis was vital, and that was the key message that came out.

It was also of interest talking to the CEO of Prudential International, Michael Leahy , not so much about investment, but his view of the future for Prudential as a company and why. In some ways it matched the views of the fund managers, still focusing on the developed world e.g. the UK, but expanding, in Europe where opportunities existed, the Far East and other global opportunities.

Finally it was good to have a presentation from “Best Invest”, voted by the readers of Investors Chronicle, the UK Wealth Manager of the year and Best Wealth Manager for Investments in 2013 by the Financial Times. They can provide a solution for those clients of ours that may be returning to the UK or who are not resident in Europe, but work abroad, have holiday homes here and hold ISA’s, PEP’s and need advice on their UK pensions if a QROPS is unsuitable.

After all the hard work, it was great to wander through the snow, take in the bracing fresh air and explore Davos, with its variety of bars and restaurants. It was also interesting to see how the arrival of the World Economic Forum transformed and affected such a small resort. As a non-skier, and I am pleased I am a non skier having seen how steep the slopes were, it was more relaxing for me. Next year we are off to Bordeaux, warmer climes and although Swiss Air was brilliant, a pleasant drive there is already being planned.

Who do you bank with?

By David Hattersley
This article is published on: 30th October 2013

Following the recent “Le Tour de Finance” seminar at the Marriott Hotel in Denia, one of the attendees approached me with interesting tale. The Lady was a British expatriate and long term resident in the Javea area. Like many retried expatriates she had been concerned about the security of her assets following banking issues in both UK and Spain, post 2008. She told me she had always felt safe banking with British household names whether at home or abroad. She was shocked to learn that Lloyds Bank’s Spanish operations had been sold to Banco Sabadell.

She felt this had not been properly publicised and she had not had clear information about the change from the bank. She visited her local branch and was surprised that the staff knew little about the change of ownership.

I was able to explain the €100,000 per account deposit guarantee scheme, guaranteed by the Spanish Government in the same way as UK bank deposits are guaranteed by the British Government to the tune of £85,000. This Lady had clearly done her homework and pointed out that the guarantee is per banking group and not per account. We agreed that bank accounts were necessary for emergency funds even when, given current interest rates they were guaranteed to lose money in real, spending power terms. We also agreed that for longer term investing, especially for income, there were much better options out there, one particular proposition from the Prudential, (fully Spanish compliant) had been highlighted during the “Le Tour” seminar.

Our motto is “With Care, You Prosper”, we urge our clients to take a very active interest in their finances, we are here to help our clients help themselves.