A case study on UK final salary pensions
By Michael Doyle
This article is published on: 28th November 2016
I was recently asked to review one of my client’s UK pensions.
He had what is known as a Defined Benefits Scheme – more commonly referred to as a Final Salary Scheme.
My client had lost touch with this scheme a few years back and the last update he had from them was in 2006. On this statement the scheme offered him a transfer value of approximately £52,928, otherwise he could remain in the scheme until he was 65 and have a pension commencement lump sum (PCLS) of c. £27,000 and an income of £4,700 per annum.
If he remained in the scheme and took the lump sum and income, in the event of his death there would be no lump sum paid to his beneficiaries although an income payment of around £3,000 per annum would have been paid until the 10th anniversary of his 65 birthday.
On completing a review of my client’s pension I found that the scheme would now offer a transfer value just in excess of £180,000. In transferring this to a Qualifying Recognised Overseas Pension Scheme (QROPS), I was able to offer my client an initial PCLS of £45,000. This still left him with a fund of £135,000. Assuming we can provide a rate of return of 3.5% after charges then the client can have the same income as with his Final Salary Scheme.
Assuming the client only draws down the same £27,000 that his UK pension offered then we would only have to provide returns of 3.07%.
In the end, the client chose the transfer because:
- In the event of his death after receiving the PCLS, the remaining funds could be passed on to his children.
- He only needed the PCLS and not the income at 65. This was not an option under the final salary scheme.
- He can control the level of income he needs going forward (subject to the returns in the funds he was invested in).
With annuity rates being very low at this time, final salary schemes are offering a much higher transfer value and this can be beneficial for both you and your beneficiaries.
To review your pension options today please contact me for a no obligation chat and free analysis on your personal situation.
Brexit, US Election & Exchange Rates
By Spectrum IFA
This article is published on: 7th November 2016
There are so many things that I could write about this month and it’s difficult to choose one above the others. So a quick summary of what’s topical might help.
BREXIT
What an interesting conundrum that the UK government is faced with now! Actually not just the government, but the MPs who personally wanted to remain in – or leave – the EU, before the Referendum took place, but represent constituencies that voted in a different way to those MPs personally want.
Will MPs put their personal feeling aside and vote according to what their constituents want? Would this effectively change the result of the Referendum. At the very least, MPs should ensure that their constituents are provided with sufficient information on all of the issues that can arise if the UK leaves the EU. Constituents can then make an informed decision, if given the opportunity to express their opinion to their MP.
It’s interesting that the Court’s decision was based on the argument that the government cannot use executive powers to trigger Article 50 of the Lisbon Treaty because it would effectively mean overturning an act of Parliament. However, Parliament is sovereign – it can create laws and only Parliament can take these away, not the government. The interesting word here is “sovereign” because this is exactly what the Brexitiers want to get back from the EU.
It’s well known that Theresa May still wants to push forward with triggering Article 50 by the end of March 2017. However, unless the government wins its appeal against the Court’s decision, she may not get her wish.
Despite the ‘certainty’ in law of the Court’s decision, the result creates more uncertainty at this point, as to whether or not Article 50 will ever be invoked. This is likely to continue to create pressure on Sterling (more on this below), and market volatility, until such time as when the process has either been completed or dropped altogether.
On the bright side, if MPs are to debate the terms of what the UK should negotiate from its withdrawal from the EU, before Article 50 is invoked, perhaps we may have some idea of what the outcome of a Brexit may look like. However, it’s a ‘catch 22 situation’, as the EU will not negotiate terms with the UK until Article 50 is invoked and so there is no guarantee that the UK will get what it wants – whatever the outcome of the Parliamentary debates.
So Brexit may not now mean Brexit, but at the very least, it may be further away than we thought.
US Presidential Election
I am writing this article a few days before the election. It seems that both candidates may have skeletons in their closet – Clinton with her emails and Trump with his tax returns. During the last few days, Trump went ahead in the polls and now Clinton has pipped ahead again. In reality, the polls are too close to call and the last time that I wrote that was just before the EU Referendum. Look what happened there!
Markets are beginning to price in the possibility of a Trump win. If it becomes a reality, there is likely to be a large sell-off in US equities (and it can’t be ruled out that this may ripple through to other markets). This is contrary to what would usually happen after a Republican victory, but then, Trump has contrarian views to those of the normal Republican policies.
However, as markets begin to reflect on positive tax changes and the looser regulatory environment that Trump supports, we might see a V-shaped turn, perhaps a repeat of what happened after the Brexit vote.
If the odds continue to move against Clinton in the final days approaching the election, the markets are likely to move further downwards. However, if the outcome is a Clinton win, then it could bring with it a bounce back in markets.
Longer-term market views of a Clinton win are positive, but not so for a Trump win. There is a high possibility that his anti-trade policies with the rest of the world would cause a large slowdown in growth. Unlike the UK that wishes to close its borders to immigrants, but still wants to trade with the world, Trump seems to be determined to curtail imports through a variety of policies, all of which are within the power of a president, with or without the support of Congress. As a result, a Trump trade-led recession could even tip Europe back into full-blown recession, which would likely precipitate a serious European banking crisis, something which is already a concern. Additionally, the effect on emerging markets could be very negative.
By the time you read this article, we may know the results, or will do shortly after. In the meantime, I am very much hoping that the American people do the right thing on the day.
Sterling Exchange Rate
Can it get worse? Well yes, it can and yes, I think it will. I would not be surprised to see Sterling reach parity with the Euro and lately, I have started to think that it could go even lower. Unfortunately, the downward pressure on Sterling is likely to continue until Brexit is over
If you are retired and receiving UK pensions, then you will be feeling the difference. Even with the little bounce back after the Court’s decision, Sterling has still fallen around 16% since the day following the EU Referendum and around 25% over the last year – so in other words, that’s 25% reduction in your pension income. If you also have investment income in Sterling, this means that your capital has to earn 25% more than it did a year ago, just to maintain the same rate of return relative to Euro. Even worse, your Sterling capital has lost 25% of its value in Euro terms.
Sterling is undervalued and there is no doubt that it will eventually rise from the ashes. But when and what do people do in the meantime?
If you are using a bank to transfer Sterling to Euros, you are likely to be receiving a very poor rate of exchange. Hence, it is worth looking at using a forex company for your currency transfers, as the exchange rate that the companies offer is usually higher than the banks. If you do not already have an account with a forex company and you would like to know more about this, please contact me. Even if you already have an account, it can be worth shopping around and we can refer you to a reputable company.
If you are lucky enough to have some capital in Euros already, it might be worthwhile using this, in lieu of your normal Sterling source of income, or at least for part of your income needs. However, everyone’s situation is different and so it is very important to take advice before doing this to make sure that your longer-term objectives are not put at risk.
Financial Review
It is at times like this that people need financial advice, more than ever. Hence, if you would like to have a confidential discussion about your situation, or any other aspect of retirement or inheritance planning, you can contact me by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an adviser is available immediately for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of pensions, investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.
Should you consider transferring your Final Salary Pension?
By Spectrum IFA
This article is published on: 28th October 2016
A big question and something that raised a lot of interest at our recent Tour de Finance event that took place at the Domaine Gayda. There have been a number of recent changes within the UK economy and the UK pension world 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 is wide opinion now that 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?
Why Review now?
Record high transfer values
The calculation of transfer values from these types of scheme is complex. One of the factors that determines how much the pension scheme has to pay to transfer a Member’ benefits is gilt yields, which are at an all-time low. This has resulted in transfer values to be at an all-time high and we are finding that some transfer values have increased by over 30% in the last 12 months.
Scheme Deficits
Actuaries Hyman Robertson now calculate the total deficits on the remaining UK final salary pension schemes as £1 Trillion! Since the employers are ultimately responsible for funding the cost of the pension benefits, unless they have very deep pockets, this puts the security of the benefits at risk.
TATA Steel/BHS
The final salary pension schemes of these two companies have been in the news. These recent examples show that the very large deficits of their final salary pension schemes 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 the schemes that do get into financial trouble, but 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 insolvent schemes. As more schemes fall into the PPF, there are less remaining schemes that have to share the burden of this cost. Their premium costs will increase, as there will be less remaining schemes to fund the PPF levy.
It is likely the PPF will end up with the same problems as the remaining final salary schemes, as it is unlikely to 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 allowed 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 for transfers, so schemes for nurses, firemen, army 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 of the schemes.
When this rule was being considered the authorities also wanted to block the transfer of funded schemes, i.e. most final salary schemes that are available. This could come back onto the discussion table in the future.
Autumn Statement (Budget)
This is on 23 November 2016. Could the Government make any further changes to UK 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?
Reasons why schemes are in difficulty:
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 the amount invested in equities in final salary schemes; this is now around 33%, but in 2006, the average equity content was 61.1%.
Benefits were too good
Simply, many of the final salary schemes were ‘too good’. In 2009, around 24% of employees’ salaries was needed to fully fund final salary schemes that provided the standard level of benefit of 1/60th for each year of pensionable service. In 2016, that rate is now 50%! Clearly, it is unrealistic to expect an employer to meet the liability.
What could happen in the Future?
- An end to the ability to transfer out of all final salary 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?
Act now! Review your pensions.
It does no harm at all to at least have a review of your pensions. In fact, it is prudent to do so. At The Spectrum IFA Group, we carry out a full transfer analysis, which is in accordance with the UK Financial Conduct Authority rules, before making any recommendation to transfer pension benefits. Doing nothing at all can often be an expensive mistake.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of pensions, investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter .
Le Tour de Finance – British Embassy Paris 19th October 2016
By Spectrum IFA
This article is published on: 12th October 2016
The Spectrum IFA Group, as one of the participants of Le Tour de Finance, is proud to announce that the event of 19th October will be held at the British Embassy in Paris.
This prestigious event brings together a number of experts from major British financial institutions on subjects such as UK/French Tax Issues, BREXIT and what this could mean for British expats, Pensions/QROPS and Tax Efficient Investing and Estate Planning for expats.
The popular Tour de Finance events are an excellent opportunity for expats living in France to get those all important questions answered by specialists in their respective fields. The events will also give you a chance to meet other like minded expatriates in a relaxed and convivial atmosphere.
The event will commence at 18.00, with a complimentary buffet in the Embassy from 20.00 – 21.00.
If you would like further information or would like to book a place, please contact us
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be.
Send us your questions and the event you will be attending and we will try and cover them on the day:
Please click here Le Tour de Finance Questions
Should you consider transferring your Final Salary Pension Scheme?
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?
Why Review now?
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’.
Reasons why schemes are in difficulty:
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.
What could happen in the Future?
– 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
Fonds en euros in assurances vie policies.
By Graham Keysell
This article is published on: 6th October 2016
There has been concern for some time, about how plummeting bond yields may affect the extremely popular ‘fonds en euros’ (by far the most popular choice for French investors in assurances vie policies). The question is how life insurers are going to be able to continue paying an acceptable annual return to their policyholders, while sovereign bonds offer increasingly low (or even negative) returns?
To explain, these ‘fonds en euros’ have to guarantee capital whilst paying a bonus every year. The only way that a fund manager can be sure of meeting this obligation is to put the vast majority of investors’ money into French government bonds. By doing so, they fund government debt to the tune of trillions of euros.
As recently as 2007, they were paying an attractive 5% per annum net. This has now fallen to about 2.5% and are set to fall further, almost certainly to under 2% for 2016. With bond rates at historically low levels, they should now only be paying about 1%, but companies have been dipping into their reserves as they fear that such a low rate would lead to a mass exodus from these policies. This has inevitably caused concerns about the financial stability of the insurance companies.
There have been several recent developments:
1) The state has imposed new reporting requirements on life insurers from 1 January 2016 under which they are obliged to provide details of policies with a value of more than €7,500. This is to assist the fight against money laundering but it could also be used to test the solvency of insurance companies.
2) For the past few years, the French Ministry of Finance and the Governor of the Bank of France have been consistently urging life insurers to lower returns on their ‘fonds en euros’. This has not been sufficiently acted upon and the government has now passed an amendment to Article 21a of the law “Sapin 2”.
Voted in secret on June 23 (with the French population concentrating on their imminent summer holidays and the euphoria of the European Cup!), the new legislation passed virtually unnoticed by the mainstream media.
There were very few immediate reactions, even though some members of parliament were taken aback by this amendment when it was presented to them to vote on by the MP proposing the bill.
The government, as has often happened in the past, conveniently happened to be going on their own summer holiday immediately afterwards. This avoided their having to answer any awkward questions, had this matter happened to come to the attention of the media!
Whether this legislation ever needs to be acted upon depends on government bond and bank interest rates. However, the future certainly looks bleak for investors in ‘fonds en euros’ (probably 90% of all French assurance vie policyholders).
What does this new law actually say and how will it affect you?
It gives the ‘Financial Stability Board’ (‘HCSF’) the power to ‘suspend, delay or limit temporarily, for all or part of the portfolio, withdrawals or the option to switch funds’.
The implications of this are clear: overnight, at the request of Governor of the Bank of France, the HCSF may prohibit you carrying out all normal policy operations, including withdrawals and fund ‘switches’.
In short, some or all of your assets could be frozen for “a period of 6 months, renewable” (i.e. for whatever time is required for the crisis threatening an insurance company to pass). It is not inconceivable that your investment could be reduced in value in order to avoid an insurance company becoming insolvent. Article L.612-33 of the Monetary and Financial Code provides the means for this reduction to be imposed. It is not known how this would affect the official guarantee of €70,000 for every assurance vie policy.
People are becoming increasingly disturbed, and rightly so, that this draconian law will now allow the authorities, in total disregard of contract law, to deprive you of access to your money!
However, on closer inspection, the powers given by this new legislation were already granted to the ACPR (Prudential Control Authority and Resolution) by Article L. 612-33 of the Monetary and Financial Code, as follows:
“If the solvency or liquidity of a person or institution subject to supervision by the Authority or when the interests of its customers, policyholders, members or beneficiaries, are compromised, the Prudential Control Authority shall take the necessary precautionary measures […] it can, as such: […] 7. instruct a person or institution […] to suspend or limit payment of cash values, the option of switching investments, or the granting of policy loans.”
One should remember that similar provisions exist in the banking sector. The directive on the recovery and resolution of banking crises (BRRD) authorizes freezing of clients’ assets and potential loss of money in bank accounts, in case of any difficulty that might lead to insolvability..
The new version of the text is intended to prevent and reverse the effects of a contagion that could affect assurance vie investors in the event of a severe financial crisis, It is designed “to preserve the stability of the financial system or prevent risks seriously threatening insurance companies or a significant number of them.”
Clearly, these measures are intended to protect insurers, especially if investor panic sets in and there were mass surrenders of assurance vie contracts, an event which insurers would be hard pressed to cope with. They are holding bonds with maturity dates of ten or even thirty years from now. To try and offload trillions of euros of bonds would just not be possible.
How to react?
One suspects that this situation is worrying insurers because they are struggling to meet the expectations of their investors. This is eating into their reserves and, regardless of the prospect of an eventual increase in bond yields, some of them could find themselves in a precarious situation in the months and years to come.
The threat is therefore not just a short term one.
Of course, it would be reassuring to think that worried investors would not panic and withdraw their money from these policies, knowing that this would only exacerbate the situation.
Policyholders are all too well aware that if they rush en masse to cash in their contracts, they could actually cause the assets in these policies to be frozen. But is that going to stop them trying to be ‘first in the queue’ and avoid the suspension of withdrawals?
The ideal scenario would be for investors to stay calm and avoid possible future difficulties by gradually switching out of ‘fonds en euros’ to other assets (unit linked multi-asset funds, property funds, etc). We will see if this is what happens!!!
In spite of all this, assurance vie remains an attractive investment, especially in view of its advantageous tax benefits. Investors therefore have to weigh up the advantages compared to what is obviously an increased element of risk.
Fortunately, there are companies who offer alternative funds to ‘fonds en euros’. There are also policies domiciled outside of France (in Dublin, for example) who should be completely immune to this French legislation.
Le Tour de Finance – Autumn Leg in France
By Spectrum IFA
This article is published on: 3rd October 2016
The autumn series of Le Tour de Finance events started off in Switzerland at the end of September and are moving towards the southern regions of France for the early October seminars, and then north with a quick visit to Brussels and then on to Paris before finishing in the north west regions.
- 5th October – Les arcs sur Argens, The Var
- 6th October – Chateau La Coste, Le Puy Sainte Reparade
- 7th October – Domaine Gayda, Brugairolles, Languedoc
- 18th October – Brussels, Belgium
- 19th October – British Embassy, Paris
- 1st November – Ploermel, Brittany
- 2nd November – Silfiac, Brittany
- 3rd November – Evron-Mezangers, Mayenne
To book your attendence for any of these events, please click here
So far, Le Tour de Finance in 2016 is proving to be the most popular series of events ever. The seminars offer English speaking expats a chance to meet various experts from large independent finance businesses in the flesh. Coaxed out from behind their desks, these senior executives from companies such as Tilney BestInvest, Prudential, Rathbones, Momentum Pensions, SEB and Currencies Direct give short presentations on a range of subjects and then welcome questions from the floor. This really is the chance to get those all important questions answered by the professionals.
This unprecedented access to a range of international and independent experts is what sets Le Tour de Finance events apart.
The first leg of the autumn tour moves through the south of France and then heads direct to Paris on 19th October with a prestigious event at the British Embassy. In the first week of November the tour will head west to Brittany and Mayenne.
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be. If you’d like to send us your question please click here to complete the form.
If you would like further information or would like to book a place, please contact us or visit the dedicated Le Tour de Finance website for further information on the future events
I have a long term relationship with a UK regulated financial adviser, why should I speak to French regulated one?
By Amanda Johnson
This article is published on: 14th September 2016
Many of us have banking and financial services relationships from the UK and whilst you may feel a financial review now you are resident in France isn’t urgent or important the benefits can be enormous. A full financial review can be free and you should always ask what costs are applicable to any consultation you arrange. Some of the benefits include:
Capital Gains Tax – Certain tax efficient savings and investments recognised by HMRC would not qualify under French taxation, leaving you with a tax bill on the gain element.
Inheritance Tax – UK inheritance tax planning is very different to that in France and even though you can opt to have your UK will recognised in France, tax on your estate will be based on French tax rates and laws.
Compliance with the French tax system – Knowing how and when to declare your investments and savings can avoid financial penalties for non-disclosure.
It is very important to remember that whilst your UK financial adviser has been of great service whilst you were resident in Great Britain, if they are not trained and regulated in the country you now live the French authorities will still expect your financial affairs to fully comply to French laws and this may mean you are presented with an extra tax bill for any non compliance.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
Every Cloud
By Derek Winsland
This article is published on: 8th September 2016
With the exception of a weakening pound and falling interest rates, we are yet to see the full impact of Britain’s vote to leave the European Union. Perhaps we may not ever see it if Teresa May and/or others decide against triggering Article 50 to herald the start of the process. We currently sit in a ‘phony’ period where no-one knows quite what will happen, causing doubt and uncertainty to set in. We await with bated breath the latest results to come out of the Treasury and the Bank of England.
The latter recently reduced interest rates to an historic low of 0.25%, at the same time announcing a new round of Quantitative Easing. Falling interest rates are either a good thing or a bad thing depending on which side of the saver/borrower fence you occupy. Clearly borrowers are happy, but for savers, especially those who rely upon their capital to supplement their retirement income, it’s not such a happy picture. Indeed, I am seeing this most days I speak to people about their finances. Thankfully, we are able to make investment recommendations that will generate higher levels of returns to counter falling interest rates, but these don’t suit everybody. But like most things I find in financial services, there’s generally a positive that accompanies a negative, if one looks close enough.
One such area relates to the impact falling interest rates has upon pension transfer values. In my last article I touched upon the way transfer values from occupational (defined benefit) schemes are calculated. Without going into chapter and verse, a fundamental part of the calculation process uses gilt interest rates to determine the transfer amount. Although the schemes have a certain amount of leeway in interpreting the rules, the bottom line is that low interest rates result in much higher transfer values having to be quoted by scheme trustees. This makes the decision on whether it suits an individual’s purpose to transfer somewhat easier to determine.
The observant amongst you will recall I mentioned TVAS in my last article, and the (somewhat out-of-date) rules that the FCA still clings on to. Remember critical yields? Well, a higher transfer value will result in a more achievable critical yield becoming attainable, so making the decision to move to a personal pension such as a QROPS, easier to make. Sure there are variables and these are more or less important depending on who you are and what your circumstances are. Carrying out a full analysis of your own particular situation, Spectrum’s advisers can place you in an empowered position to make your choices, so, if you have a defined benefit scheme that you’ve either never reviewed, or one that hasn’t been looked at for a while, perhaps now is the perfect time to do so.
Every cloud……!
Parkinson’s Law
By Victoria Lewis
This article is published on: 24th August 2016
Are you familiar with Parkinson’s Law? Originally it stated that “work expands to fill the time available for its completion.”
Parkinson’s Law is the title of the book written by Englishman Cyril Northcote Parkinson in 1958 and today, the more recent understanding of the law is a reference to the self-satisfying uncontrolled growth of the bureaucratic apparatus in an organization.
The Law is also applied to money and wealth accumulation: expenses always rise to match income. Parkinson’s Law can explain why many people retire poor and why some people succeed, whilst others fail.
The law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses increase in line with their earnings. Many people earn today several times more than they were earning at their first jobs. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, it is never enough.
The key to financial success – break the (Parkinson’s) law
Parkinson’s Law explains the trap that most people fall into. This is the reason for debt, money worries and financial frustration. It is only when you have sufficient willpower to resist the urge to spend everything you make that you begin to accumulate money – the perfect environment to help you achieve financial independence.
Reduce your outgoings
If you ensure your expenses increase at a slower rate than your earnings, and you save or invest the difference, you will become financially independent in your working lifetime (and retirement).
Measure the difference between your earnings and the costs of your lifestyle, and then save and invest the difference. You can continue to improve your lifestyle as you make more money.
Take action
Here are two things you can do to apply this law immediately:
- Imagine that your financial life is like a failing company that you have taken over. Stop all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures to these amounts. The aim is to make sure that your ‘company is making a profit’.
Carefully examine every expense. Question it as though you were analysing someone else’s expenses and look for ways to economise. Aim for a minimum of say, 10% reduction in your living costs.
- Resolve to save and invest 50% of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50 percent to do with as you desire!