By Peter Brooke
This article is published on: 5th October 2023
What is the Cash Calc Secure Client Portal?
Cash Calc was launched back in 2014 by a UK IFA who was unimpressed with the digital tools available to our industry. It was initially launched as a Cash Flow Planning Calculator – more on this later, but has developed into a broad suite of great tools for advisers like me and their clients.
In order to best advise my existing and future clients I need a full picture of their current situation and an understanding of their objectives, aspirations and goals – we rather boringly call this ‘fact finding’… though it is not all just facts!
A recent addition to the Cash Calc tools is the ability for my clients to complete or update their own fact find in their own time from the comfort of their own homes via the Client Portal, if they want to. It is totally secure and can be updated as little or as often as necessary.
We can also use the portal for the secure sharing of documents, like investment statements, passports, utility bills etc AND for secure two way messaging.
For those who prefer not to use this service, please don’t worry, I will still use it as a data storage tool but will manage the access and information myself.
Please check out this video for more:
If you are already ‘onboarded’ and have your Portal login details please do have another look and send me a quick message (top right corner of the screen) to say hi and confirm it is all working OK.
Some of my existing clients have stated a preference to have their quarterly investment statements shared via the portal as a more secure option than email – please don’t hesitate to let me know if you prefer this too?
If you are not yet ‘onboarded’ please don’t worry, as part of our review process I will be sending you a personalised ‘secure invitation’ to the portal to set it all up; it is very easy.
Of course, if you just can’t wait please drop me a line and I will send your personalised login details immediately.
As mentioned above Cash Calc started as a ‘Cash Flow Planning Calculator’ and though it is now so much more, this remains one of the most powerful and useful tools for creating truly personalised financial plans.
Using the ‘fact find’ data you provide in the portal I can create multiple bespoke cash flow plans to look at various scenarios and forecast how your financial situation will evolve over time.
“can I afford to retire now?”
“can we pay for our daughter’s wedding?”
“can we fund our Grandchildren’s education?”
We can see graphically where you are today and what changes, tweaks or decisions need to be made to ensure you will be ok long into the future.
….. oh, and it has a load of other great tools we can use too…..
By Peter Brooke
This article is published on: 4th August 2023
This update is a look back at 2022 and the year so far in 2023! I believe that 2022 was one of the toughest years of the 25 of my career in terms of the very difficult conversations I had with many of my clients. Those 25 years included the DotCom Bubble, 9:11, the invasion of Afghanistan, the second Iraq war and the Global Financial Crisis.
2022 was different for one main reason… it seriously affected Cautious and Balanced investors and as most of my clients are retired and therefore dependent on their capital for income, it means they need to take a more cautious or balanced approach to managing their money.
So what happened?
At the start of 2022 markets were pricing in a low to moderate increase in interest rates for the whole year, how wrong they were … in fact, the US Federal Reserve raised rates by 4% in 2022 and have carried on into 2023 and many other central banks followed suit.
When interest rates rise, the values of government and corporate bonds fall but long-standing portfolio theory states that bonds must always make up a large part of cautious portfolios, hence the very difficult year for cautious investors. Equities (shares) didn’t fare much better but have shown a faster recovery towards the end of 2022 and into 2023.
This chart shows four different typical risk profiles over the last 2 ½ years taking in the recovery from Covid to the inflation spike, invasion of Ukraine and the year so far. Highlighting the tough times that cautious (green line) and balanced (orange line) investors have had over the past few years.
So why did this happen?
Inflationary pressures had started to build up as economies reopened after the Covid pandemic. Supply chain disruption during the pandemic created shortages, which collided with a sudden increase in demand. An under-investment in energy, particularly fossil fuels also contributed to inflation through higher oil and gas prices.
The war in Ukraine shifted this inflation problem to a full-blown cost-of-living crisis. Central banks were slow to act initially, thinking it was all linked to the pandemic, but it soon became clear that rising prices would be more persistent than expected. Central banks had no alternative but to raise interest rates.
Equities
2022 was a year most investors would rather forget, with bond and equity markets seeing significant falls and uncomfortable volatility. Importantly, holding a portfolio of bonds and equities provided little protection, as both asset classes proved correlated to high inflation.
The year also saw a considerable rotation from “growth” to “value”, ending the long dominance by the technology sector. In particular, many of the stock market darlings of the previous decade saw weakness – Meta Platforms, Amazon, Alphabet and Netflix. At the same time, investors had assumed the strong performance of areas such as e-commerce during the pandemic would persist in a normal environment. It didn’t, earnings fell and share prices were hit hard.
Energy was the only obvious victor at a time when commodity prices were high, though share price rises slowed in the second half of the year as governments demanded a share of their windfall profits. Nevertheless, the sector remained the best performing of 2022.
The UK stock market outpaced most of its international peers due to a bias in the year’s most popular sectors such as mining, commodities, oil and gas, and the shift away from growth sectors such as technology, which are only lightly represented in UK equity markets.
Bonds
It was a grim year for bond markets, which had to contend with rising inflation and interest rates. Where the US led, other bond markets followed. The UK has its own idiosyncratic problems, when an ill-judged ‘mini-budget’ under new Prime Minister Liz Truss in September 2022 crashed the pound and caused a spike in UK borrowing costs.
As discussed above, rising yields meant significant losses for investors. Most bond investors saw double-digit falls in their bond investments over the year. It may be little reassurance, but bond prices have recovered from those lows and yields are now at more reasonable levels reflecting the interest rate environment more accurately. They may once again be able to fulfil their traditional role in portfolios – as a source of income and a diversifier from equities.
So, with this backdrop and a difficult year behind us how have things fared so far in 2023?
Firstly, the gloomy scenario envisaged by many economists at the start of the year has not come to pass. The much-anticipated US recession has been deferred, while financial markets have remained resilient.
The IMF is now predicting a rise in global growth for 2023 though much of this growth won’t becoming from developed economies while emerging markets economies are expected to expand led by China and India.
Inflation has come down but has proved far stickier than many expected, with labour markets remaining healthy across most major economies. This has forced central bankers to continue raising interest rates. While the US Federal Reserve appears to have paused with central bank rates of 5.25%, the UK and eurozone central banks are still raising rates and have indicated further rises may lie ahead.
Financial markets have been resilient. The disruption created by the collapse of several banks proved short-lived, with swift action from policymakers and regulators preventing wider problems.
The US stock market has seen a surprising surge from the technology sector. After a grim year in 2022, against expectations, they roared back in 2023. The galvanising force has been generative artificial intelligence, with excitement around Chat GPT creating interest in semiconductor companies such as Nvidia as businesses look to invest in this new technology.
The US economy continues to deliver mixed messages. A buoyant labour market has continued to reduce expectations of a deep recession.The Fed has remained resolute on interest rates, although it paused rate rises in June, it has made it clear that it is willing to raise them again should inflation continue to rise.
Recession appeared an inevitability for the UK economy at the start of the year. As it is, it has not materialised, with falling energy prices, government support and a resilient consumer all acting to shore up growth. Inflation has remained stubbornly high and so the Bank of England has been forced to keep raising interest rates, which are now expected to peak at around 6%.
The UK stock market had a weak start to the year as commodity prices fell and the banking sector was hit by the failures of Credit Suisse in Europe and Silicon Valley Bank in the US. The resurgence of US technology stocks also impacted the UK market as investors swapped from “value” back to “growth” companies.
It was a stronger period for stock markets in Europe as company earnings improved and outstripped the US early in the year. A mild winter and prompt action by governments across the region saw an energy crisis averted. The region was also lifted by the resurgence of China, which is an important export market, particularly for Germany and Spain.
The European Central Bank raised interest rates to 3.5% in June, their highest level in 22 years. Eurozone Consumer price inflation declined steadily from over 10% in October 2022.
The outlook for Asia has been dominated by China. The country’s reopening in October 2022 led hopes of galvanising global economic growth at the start of the year. However, the initial stock market rally petered out as growth has not bounced as many had hoped. Confidence has not yet returned to pre-pandemic levels.
Asian markets have continued to lag their global counterparts as expectations of a swift return to economic growth in China have receded. Nevertheless, there remain plenty of reasons to be optimistic as Chinese stimulus for infrastructure projects is beginning to feed through to the economy.
Japan has been rediscovered by investors in 2023, with veteran investor Warren Buffet making a high-profile investment in the country’s stock markets. The Japanese economy is also starting to improve as reopening gathers pace and wage growth drives consumer spending. As a net importer, it is also benefiting from lower oil prices, which is helping to improve the Government’s fiscal position.
Bonds
The yield (interest paid) on US ten-year government bonds dipped in April, but moved back up as investors started to anticipate more rate rises ahead. Short-dated bonds now have higher yields than longer-dated bonds. This situation is known as an inverted yield curve and means investors expect rates to be cut over the longer term.
This “inversion” is currently common place, with 37 countries now trading with inverted yield curves, including the UK,Germany, France and Canada.
Financial markets seem to be in a holding pattern, waiting to see how much impact higher interest rates will have on economic activity and looking for clear signs that the interest rate cycle has peaked, and the next rate move is downwards. From the strength of China’s recovery to a potential recession in the US to the resilience of the corporate sector, there are major questions going into the second half of this year.
I am, once again, very grateful to the team at Evelyn Partners for their help in putting this summary together and hope it is useful in framing where we are today and how we got here.
They have some excellent articles on the impact of AI and the basics of how Bonds work.
https://www.evelyn.com/insights-and-events/insights/the-basics-of-bonds
By Peter Brooke
This article is published on: 3rd July 2023
As part of my commitment to providing you with the knowledge and resources to navigate the complex world of finance with ease, I am pleased that you can now download four indispensable guides that cover a range of important financial topics.
To access these resources, simply click on each of the links.
I am a firm believer that knowledge is the key to financial success, and these guides are designed to empower you on your financial journey. Whether you’re an experienced investor or just starting out, these guides offer valuable insights to help you make well-informed decisions.
Understanding Investment Risk
Investing can be both rewarding and challenging – in this guide, we try to demystify investment risk. I believe risk can be thought of like energy: it is neither created nor destroyed, it simply changes from one category to another.
↵Click the image to find out more.
French Tax Changes and Planning Opportunities for 2023
Taxation is a crucial aspect of financial planning, particularly if you reside in France or have financial ties to the country. Our guide summarises the current French tax landscape for 2023 – providing you with an overview of tax changes and planning opportunities.
↵Click the image to find out more.
Responsible Investing and ESG Funds – The Spectrum Approach
Environmental, Social, and Governance (ESG) investing has gained significant momentum, allowing investors to align their portfolios with their values. This guide delves into the world of sustainable investing, providing insights into ESG principles, investment strategies, and the potential impact of ESG factors on financial performance.
↵Click the image to find out more.
Tax Efficient Savings & Investments in France 2023
Unveiling the Benefits of Assurance Vie
Assurance Vie is a popular long-term savings and investment product in France. Discover the advantages, tax benefits, and investment options associated with Assurance Vie in our comprehensive guide. Learn how to leverage this powerful tool to secure your financial future.
↵Click the image to find out more.
Remember, I am here to support you. If you have any questions or need further assistance, please feel free to reach out via the below contact form, or the booking system below.
By Peter Brooke
This article is published on: 9th May 2023
The tax season is underway and whilst those who are declaring for the first time by paper have until 22nd May to complete their returns, most other people in most departments have until early June. Of course many people want to get it done as soon as possible. Now that all the forms are available, which can be downloaded here from the French Government website, you can have a clearer idea of how to declare.
If you have employed someone to do your tax return, the chances are you have already sent off all your information. However if you want to have a go at doing your own tax return, then here are some tips for this year!
First tip – I would highly recommend investing in the Income Tax Return guide from the Connexion magazine – which can be bought online here.
Please note that we, at Spectrum, are not accountants and do not complete tax returns for our clients, in fact I personally find the process as complicated as I am sure you do.
Hopefully some of these tips will help – of course if you do need help then I would recommend speaking to the team at French Tax Online who have a lot of information and experience with French Tax returns: https://www.frenchtaxonline.com/
Everything is declarable, not everything will be taxable!
1. Get organised first – have all your information together before you start. If you are using your Self Assessment Tax Return from the UK, make sure you decide which number you are using (April 22 or April 23) and stick to that method for UK based income. If you suddenly change and start taking the figures from your bank account then you will be double taxed on the first four months of the year. Collect all your statements, payslips, tax certificates together in the one place and note down the figures for all your sources of income and the exchange rate at the date of payment (or the annual average)
2.You must declare ALL of your worldwide income. French income is declared on the main tax form (called the 2042) and put any foreign sourced income on the 2047 form. You need to declare all of your non-French bank accounts on the 3916 form. If you are doing the return for the first time on paper you will need a paper copy of all these forms
You will also need the 2042 C form as that is where you will find boxes 8SH and 8SI that you must tick if you have an S1 certificate so that social charges aren’t charged on your pensions and that the reduced rate of social charges of 7.5% as opposed to 17.2% are charged on any investment income
All of the forms can be downloaded here from the French Government website
3. Healthcare: If you are declaring online you need to tick box 8SH and 8SI to inform the French authorities that you are covered for your healthcare by another system of the EU (including the UK)
4. Foreign Bank accounts and Assurance Vie (AV): If you are declaring online you need to tick box 8TT (for Dublin or Luxembourg AV) and 8UU (for non French bank accounts) in order to create the 3916 form which needs to be completed with the details of these accounts. If you are declaring on the paper form, these boxes are at the bottom of the main 2042 form. If you are declaring an assurance vie you will need to have the value (in euros) of the account as at 1st January 2022, you should receive statements from your AV provider with this information during April and May each year
5. Foreign sourced income must go on the 2047 form (the pink one). Most foreign pensions and salaries go in section 1 of this form but UK salaries, UK rental income, UK Government pensions, which are all declared in France but given a tax credit equivalent to the tax that would have been paid in France all have to go into Section 6 of this form in order to get the tax credit (box 8TK on the 2042 form)
6. Don’t forget any charitable donations that you made in 2022. French based charities send you a tax certificate, so you can use this to enter the correct amount
7. Don’t forget the kids! The tax credit for child care costs for children under 6 (born after 1st January 2016) have increased from €2300 to €3500 per child and you get 50% of this amount. This is for expenses for a nanny (nounou), nursery, after school care and holiday club. If however your child is now over 6 but you still have someone to collect them from school, this is counted as a home help tax credit (see next point)
8. Tax credits for home help. If you have a gardener or cleaner or have had some other home help in 2022, and you haven’t already received the tax credit automatically, you can declare these amounts on the 2042 RICI form here You are allowed at tax credit of 50% of any expenses up to a maximum of €12,000
Not everything has to be 100% accurate.
If you get close to the deadline, just submit your tax return as it is, you can amend the tax return, without penalties, through the correction service which will open at the beginning of August.
If you are receiving income in any currency other than Euros you need to convert it to Euros for your declaration.
You should use the exchange rate on the day the you received the income into your account and daily rates are available here:
If you don’t have access to the accurate data it is possible to use an average rate for the year which is shown in the Connexion guide as £1 = €1.158
By Peter Brooke
This article is published on: 27th March 2023
The Great Moderation & The Next Decade.
Is it really different this time?
The finance industry is often guilty of a very short term view. I read at least two emails every day that focus solely on the last 24 hours, which is probably not particularly healthy. It is also ironic that my industry then tells all its clients to only judge performance over the medium to long term … whatever that means.
Of course, understanding how daily events can affect performance is important, but from time to time we really must put this into the context of the long term, and sometimes the VERY long term.
Our friends at Evelyn Partners have created a terrific piece of research considering the last 40 years (yes, 40) and then looking forward at the next decade, where they feel there really is something different happening. Here I will summarise their musings – I hope you find it interesting.
The economic impact of China’s emergence over the last 40 years has contributed to lower inflation and lower interest rates this impact is particularly characterised by
1. Favourable Demographics – massive growth in global population AND in the numbers of ‘working age people.
2. Massive movement of workers from rural regions into new cities facilitated rapid growth in manufacturing and economic output.
3. Globalisation enabled advanced economies to tap into this pool of cheap labour. But it now seems to be slowing…
The economic impact has been significant: 40 years of falling inflation and interest rates!!
So is it really different this time?
YES – We are at an inflexion point. 4 “Megatrends” will shape markets over the next 10 years – and beyond!
1. Shifting Demographics: The old-age dependency ratio is set to increase sharply & population growth will slow
2. Changing World order: US-China decoupling and the war in Ukraine will result in ‘slowbalisation’.
3. Bumpy Energy Transition: The war has undermined energy security & accelerated the energy transition… But the transition is likely to be bumpy. It will bring new energy trade patterns and geopolitical considerations into play…
Who really owns the infrastructure which will help our Energy transition?
4. Technological Revolution: New technologies will underpin the future of business and most areas of our lives… for example Artificial Intelligence and Automation
So if we really are entering a genuinely different world, how do we manage our money over the next decade and beyond?
All of these factors will present challenges AND opportunities and so it is important to align our approach to benefit as much as possible from these opportunities and minimise the risks of being on the wrong side of the challenges.
I hope this ‘longer term’ view has helped you put your existing investment choices into perspective or helped you when choosing new investments.
If you want help with reviewing existing or choosing new funds then don’t hesitate to get in touch.
I want to sincerely thank the team at Evelyn Partners, one of the investment management firms we work closely with, for this excellent piece of research and its refreshingly long term approach.
For more information on this please visit Evelyns Megatrends Hub here www.evelyn.com/good-advice/megatrends/
If we haven’t spoken recently and you want to get in touch via my new booking system then please click on the link to book a quick call.
I have linked my diary to the excellent ‘Calendly app’ which allows us to arrange our next call, zoom or face to face meeting more easily – feel free to forward to family or friends who might need my services.
By Peter Brooke
This article is published on: 3rd March 2023
I have started 2023 with a new mission – to get myself, my clients and my future clients even more financially organised. We have some cool tech, a new booking system, an online secure portal for financial modelling and a new communications plan.
My aim is to help you to become more financially confident throughout 2023 and beyond. I will endeavour to make everything as clear, concise and as interesting as possible – we are in this together!
Everyone will need some form of financial plan at some point in their lives – but WHY do you need it? And HOW do you do it?
WHY do you need a financial plan?
“people don’t plan to fail, but often fail to plan”
Budgeting for living costs, building up savings, planning for retirement or education, saving for future large expenses, buying property, protecting your family, leaving something for future generations… all of these are considered in a financial plan.
Then do all of this in a new country with a different language, different tax system and different rules and regulations and we can see that having a well thought-out plan in a language you fully understand could be worth its weight in gold!
In addition, for Brits living in Europe there are the added complexities of Brexit since you will now lose access to UK based advice and financial products.
HOW do you create a financial plan?
Fundamentally there are two easy questions to answer which give us the skeleton of the financial plan:
1. What do you earn, spend, owe and own? This is an audit of where you are today, financially.
2. What do you want? This is a list of your hopes and aspirations, let’s call them goals, for the future.
Common ‘goals’ include:
Combining these considerations allows us to create a ‘road map’ for the coming months, years and decades and helps you understand what compromises you might need to make today to achieve the things you want for the future.
You can then feel more confident that you are on the right path to future happiness and security totally aligned to your own personal hopes and aspirations.
Here is a summary of the Spectrum process and how I, as your professional adviser, can help you through the journey of establishing a plan.
I have been in the personal finance industry since 1999 and based in France helping people like you since 2004.
I am a proud family man and love living in France; our two children, both now teenagers, were born in France and will soon be completing their schooling and will be off to university before we know it!
I am a partner and senior adviser in Europe’s largest expatriate financial advisory group; Spectrum have more than 50 advisers across Western Europe and due to our size have terms of business with some of the largest and strongest insurance and investment providers in the world; though we are independent of them.
I have a strong background in investment management and as such sit on the Spectrum Investment Management Committee which provides resources to all of our advisers, and their clients, across Europe.
I have a healthy passion for ethical & sustainable investing as a vital area of focus for the future of investing, our planet and society.
By Peter Brooke
This article is published on: 16th June 2018
By Peter Brooke & Patrick Maflin of Marine Accounts
Understanding tax liability is still a big issue for yacht crew; in fact, the confusion mainly comes from the lack of clarity about being “Resident” or “Non-Resident” somewhere. Many crew members are still putting their heads in the sand and ignoring this issue; in our humble opinion this needs a cross-industry culture change, as the repercussions for continuing to ignore tax are becoming more onerous and punitive.
So why should I bother declaring my income?
• You will avoid massive penalties, fees and interest on the taxes that you ‘might’ owe should you be investigated later.
• Your info is out there: The Automatic Exchange of Information means that all your financial information is already being shared between governments.
• Common Reporting Standards: All financial institutions such as banks, insurance companies, and investment firms are required, by law, to attain, keep and share residency information for all account holders.
• I want a mortgage: Most lenders now require proof of earnings in the form of tax returns.
• I live on a yacht and so am not resident anywhere! Does your home authority agree with your assessment of your situation? Get it in writing!
On this last point, it is a huge misconception that just because you believe that you aren’t resident somewhere, the tax authorities will not be interested in you. The onus is firmly on the individual to prove non-residency, not on the authorities to prove residency. If you can’t present a convincing case, it is highly likely that the tax authority with which you have that link will deem you to be a resident. If you haven’t declared your income to them voluntarily, they will look less favourably at your situation and can apply significant fines and interest.
So where should I declare?
If in doubt look at it in this order:
1. Time spent – if you spend time ashore where are you spending it? Keep a diary/spreadsheet of EVERY day.
2. Assets – where is most of your wealth kept?
3. Family – do you have major links to a certain country (especially important if you have children)?
4. Nationality – if you are not resident in a country due to time spent, assets or family links it is likely you should be declaring your income to your ‘home’ authority – i.e. where you are from originally.
Don’t wait to be called upon by any ‘linked jurisdictions’, be proactive, understand the tax residency rules of all of these ‘linked jurisdictions’ and voluntarily declare to the most strongly linked one. It will help you sleep at night and could save thousands in fees and interest, as well as avoid black marks on your record.
This article is for information only and should not be considered as advice. Marine Accounts assist crew with tax residency in many jurisdictions.
Peter Brooke is a financial adviser to the yachting community with the Spectrum IFA Group. Spectrum has created HORIZONS, a unique financial solution just for yachts and their crew at
www.my-Horizons.com or contact@my-horizons.com or peter.brooke@spectrum-ifa.com
By Peter Brooke
This article is published on: 26th July 2017
If you buy a government bond, sometimes called GILTS (UK), BUNDS (Germany) or T-Bills (US), as an investment, then you are effectively lending that government money. Most portfolio managers say investors should have some bond exposure in their investment portfolios as they diversify away from other assets like shares.
How do Bonds work?
You start by buying a bond on ‘issue’ for a set issue price with a ‘promise’ to pay you back the same amount in a date in the future. In the meantime, the bond pays you a ‘coupon’ or interest in payment for you lending your money. The bonds are also traded on a ‘secondary bond market’ where the price fluctuates according to supply and demand but the coupon remains the same… this means that your interest rate changes depending on what price you pay for the bond.
You can also invest in ‘funds’ of government bonds which are managed by professional managers using new issue and secondary market bonds around the world to build a diversified portfolio… but are they as low risk as they are made out to be?
Traditionally these forms of investment have always been viewed as low risk, as governments, unlike companies or individuals can always ‘print money’ and so can always pay you back. This also means that the interest rate you receive (the coupon) will be lower than company bonds.
If we consider that RISK is the chance of loss then I would argue that these investments are no longer low risk. Right now, we are in an environment where interest rates are at all-time lows around the world, inflation is starting to bite and so the chance of an interest rate increase by central banks is high; even though the rate increases may be low.
If you are holding any bond and interest rates go up, then bond values will drop, therefore I would argue that at some point you are risking a capital loss by holding government bonds. Some analysts believe that a 1% increase in interest rates could lead to a 10% capital loss on most bonds. If this is the case are you now being compensated for this risk of loss? Well, no… interest rates on government bonds are around 1% now and so with inflation higher than 1% in most countries you are losing money on an annual basis too.
So, what can you do about it? The first option is to take a little more risk and swap your government bonds for high quality corporate bonds… the coupon will be greater and as long as the companies are in good health then they should be able to repay you at the end of the term… there are also funds of corporate bonds which diversify risk.
The corporate bond market is segmented by credit rating so be aware of the level of risk this can bring to your savings… “high yield” (Europe) or “junk bonds” (US) tend to behave more like shares.
Another option would be to diversify away from western government bonds into emerging market government bond funds… there is some extra currency risk, though this can help performance too. Finally, you can outsource the choice of the bonds you buy by using a Strategic Bond fund… this will invest in corporate, government and emerging markets bonds on a strategic basis and would be very diversified.
This article is for information only and should not be considered as advice.
By Peter Brooke
This article is published on: 10th October 2016
There have been a number of recent changes within the UK economy and UK pension rules that make a review of any pension(s) essential for those living or planning to live outside the UK. Final Salary pension schemes (also referred to as Defined Benefit schemes) have long been viewed as a gold plated route to a comfortable retirement, however there are likely to be large changes ahead in the pension industry. The key question is; will these schemes really be able to provide the promised benefits over the next 20+ years?
Record high transfer values
– Gilt rates are at an all time low. This has caused transfer values to be at an all time high, some transfer values have increased by over 30% in the last 12 months.
Scheme Deficits
– Actuaries Hyman Robertson now calculate the total deficits on remaining final salary pension schemes as £1 Trillion!
TATA Steel/BHS
– Recent examples show that these very large deficits cause a number of problems, in particular no one wants to purchase these struggling companies as the pension deficits are too big a burden to take on.
– Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers. There is a strong argument that saving thousands of jobs is in the national interest, if that just means trimming down some of these “gold plated benefits”.
Pension Protection Fund (PPF)
– This fund has been set up to help pension schemes that do get into financial trouble, two points are key. Firstly it is not guaranteed by the Government and secondly the remaining final salary schemes have to pay large premiums (a levy) to the PPF in order to fund the liabilities of insolvent schemes. As more schemes fall into the PPF there are fewer remaining schemes that have to share the burden of this cost. Their premium costs will increase as there will be fewer remaining schemes to fund the PPF levy.
– It is likely the PPF will end up with the same problems as the final salary schemes, they won’t have the money to pay the “promises” for the pensioners. Additionally the PPF will most likely have to reduce the benefits they pay out.
Pension changes that have already happened
Inflationary increases have already been permitted to change from Retail Prices Index (RPI) to Consumer Prices Index (CPI), this change looks reasonably small, but over a lifetime this could
reduce the benefits by between 25% and 30%.
– In April 2015 unfunded Public Sector pension schemes have removed the ability to transfer out, so schemes for nurses, firemen, military personnel, civil service workers etc. can no longer transfer their pensions. Now these are blocked, it will be easier to make changes to reduce the benefits and no one is able to respond by transferring out.
– When this rule change was being discussed the authorities also wanted to block the transfer of funded non-public sector schemes, i.e. most corporate final salary schemes. There is therefore a risk that transfers from all final salary schemes could be blocked or gated.
Autumn Statement (Budget)
– This is on 23 November 2016. Could the Government make any further changes to Pension rules? When Public sector pensions were blocked there was a small window of time to transfer, however most people couldn’t get their transfer values in time as the demand was so high. People who review their pensions now may at least have time to consider options.
– Could Brexit end the ability to transfer pensions away from the UK? – this is still unknown, but Pensions are often a soft target of government taxation ‘raids’.
Ageing population – people now expect to live around 27 years in retirement, when these schemes commenced the average number of years in retirement was 13 years.
Lower Investment Returns – Investment returns have not been as high as expected, also there has been a very large reduction in equity (shares) content in final salary schemes, this is now around 33%, in 2006 the average equity content was 61.1%.
Benefits were too good – Simply, many of the final salary schemes were too good. In 2016, if you became a member of a 1/60th scheme then your company would need to add 50% of your salary to make sure the benefits can be paid. Clearly this is unrealistic.
– An end to the ability to transfer out of such schemes
– Increase the Pension Age, perhaps in line with the increase of the State Pension
– Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)
– Reduction of Spouse’s benefit
– Increase of contributions from current members
– Lower starting income
By Peter Brooke
This article is published on: 30th June 2016
Even if you are (or have been) a UK tax resident and religiously file your Seafarers tax return every year (which you probably should), does it mean you benefit from such things as the UK State Pension? Unfortunately not…. in order to qualify for any UK state pension (currently approximately £155per week from around age 67,) you need to pay National Insurance contributions (NIC). You need at least 10 qualifying years to receive any of the ‘new state pension’ (for those born after 1951).
In order to be eligible to pay NIC and therefore build up some allowance for UK state pension you must have a NI Number.
For yacht crew, who very rarely have any social security contributions in any country, due to the flag state not collecting them from employing companies or due to not having social security systems as we know them, it is highly likely that you will have gaps in your NI record. If you do have a gap it is possible to pay ‘voluntary’ contributions to top up your NI record and receive more pension income later.
We believe that crew should be paying the Mariners Class 2 NICs which are considerably cheaper than Class 3 and have the additional benefit of ‘contribution based employment and support allowance’ when they return to the UK, which is not available if you pay class 3 NICs.
Currently it costs £2.80 a week for Class 2 (£145.60p.a.) or £14.10 a week for Class 3 (£733.20p.a.); either way, the cost is very low to secure an income for life later.
To put this into perspective… if you were to theoretically only pay Class 3 for 35 years you would invest a total of £25 662; you then receive £155per week from, say, 67 which is £8060p.a. which equates to a yield on investment of 31% per year – a no brainer, assuming of course the UK government can continue to pay! *also it is unlikely you can only pay Class 3 for all 35 years, but the point is clear!
However, the form to apply for a review of the NI gap and to register to pay voluntary NICs is complicated and quite detailed which can put some people off from even applying to see if they are eligible to pay it. This is also another great reason to keep a seaman’s discharge book up to date at all times, right from the start of your career.
I would like to thank Clare Viner from Marine Accounts, who are experts in yacht crew taxation, for her assistance in researching this article.
There is also a wealth of information on the UK government website and a Mariners NI Questionnaire which can be filled out for a review of the situation
https://www.gov.uk/government/publications/mariners-national-insurance-questionnaire
This article is for information only and should not be considered as advice.
