Viewing posts categorised under: France

Inheritance Planning in France

By Spectrum IFA
This article is published on: 15th August 2014

If you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

There are strict rules on succession and children are ‘protected heirs’ and so are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

You are free to pass on the rest of your estate (the disposable part) to whoever you wish, through a French will and in the absence of making a will, if you have a surviving spouse, he/she would be entitled to 25% of your estate.

If you are not French resident, but own property in France, the same French inheritance rules and tax rates will apply in respect of that property – in effect, as if you were French resident.

You may also be considered domiciled in your ‘home country’ and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, ‘which’ country has the right to tax ‘what’ assets).

For example, 1963 DTT between France and the UK, specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country.

Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:

any French property, plus his/her total financial assets, would be devolved and taxed in accordance with French law; and
the UK property would be devolved and taxed in accordance with UK law, although in theory, the French Notaire can take this asset into account when considering the fair distribution of all other assets to any ‘protected heirs’ (i.e. children).

If a DTT covering inheritance does not exist between France and the other country, with which the French resident person has an interest, this could result in double taxation, if the ‘home’ country also has the right to tax the person’s estate.

Hence, when people become French resident (or own French property), there are usually two issues:

how to protect the survivor; and
how to mitigate the potential French inheritance taxes for other beneficiaries.

At this point, there are probably many people saying “but the law has changed and now I can leave my assets to whoever I wish”.

This, of course, refers to the fact that legislation has been passed by the European Union, which will give non-French nationals, who are resident in France, the ability to choose the succession rules of their country of nationality, rather than being subject to the French rules. However, this will not be effective until 17^th August 2015 and even at this stage, following analysis by the international legal profession, certain difficulties with the practical application have already been identified.

A big issue, however, is that when the EU legislation is in effect, this will not change the inheritance tax rules that apply. Therefore, even if we have the freedom to decide who inherits our estates, this will not reduce the potential inheritance tax liability. Hence, there will still be a need to shelter financial assets from French inheritance taxes.

As concerns protecting the survivor, currently, there are a number of solutions that exist in France. For example:

You can change your marriage regime to one of “Communauté Universelle avec une clause d’attribution intégrale de la communauté au conjoint survivant”, so that all of your combined assets are held within a ‘community pot’. Subsequently, on the death of the first person, the assets in the ‘community pot’ are transferred to the survivor with little administration, thus, providing full protection for the survivor.
However, the downside of taking such a course of action is that your children will only have one set of inheritance allowances from the surviving parent (€100,000 per child) and so depending upon the value of your combined estates, this could result in a potential French inheritance tax bill. Therefore, an extra solution may be needed for financial assets, in order to mitigate the potential inheritance tax bill for your children or other beneficiaries.

In any event, this possibility is not usually open to couples who have children from previous relationships, since step-children may challenge such an arrangement.
When purchasing property, it is possible to do this ‘en tontine’. Subsequently, on the death of the first person, it will be considered that the property has been owned by the survivor since the outset. However, this does not provide protection for financial assets and so an additional solution is needed.
Furthermore, a potential disadvantage of purchasing a property en tontine exists, if either (or both) of the couple have children and the natural parent of those children is not the survivor. This is because the step-children will no longer be protected heirs and so will not have any right to inherit a share of the property. Should the step-parent subsequently leave the disposable part of his/her estate to the step-children, they will be faced with a French inheritance tax bill of 60% above an allowance of €1,594 (2014 rate).
You can make a ‘donation entré epoux’, which provides for the survivor to have outright ownership of the disposable part of the deceased’s estate and usufruit (life use) of the remainder.
For property, the ‘right of use’ is easily definable, since the survivor can live in the property, receive any rental income and make any alterations necessary. However, he/she cannot sell the property, without the agreement of the other ‘shareholders’ and would have to distribute their share of the proceeds to them, when the property is sold.

For financial investments, keeping the ‘right of use’ is complicated and often creates problems. There can be doubt as to whether the survivor can draw capital as well as income and what the ‘income’ actually signifies. Hence, it is preferable to find another solution for financial assets.
It is possible to enter into a ‘family pact’ with your children. This is a complex arrangement, whereby the children effectively agree to give up their French inheritance rights, at least until the death of the survivor. However, this gives the survivor greater control over assets and keeps the step-children’s potential inheritance tax bill to a minimum.
Since giving up inheritance rights is considered to be such a serious matter in France, two Notaires would be involved in this process – one of whom would represent the children and thus, would be appointed by the Association of Notaires.

Whether or not any of the above solutions is the right one for you will depend upon your personal situation and, in effect, the value of your combined estates. In any event, all of the above must be carried out at the Notaire’s office and so it is very important to take the Notaire’s advice on the solution that is best for your particular situation.

As concerns potential inheritance taxes, fortunately, French inheritance tax between spouses (and partners who have entered into a Pacte Civil de Solidarité, commonly known as a PACS) was abolished in 2007, and so this is not an issue for the survivor.

Furthermore, the allowance between a parent and a child is reasonably generous at €100,000. However, at the other end of the scale, i.e. for ‘non-related persons’ (which includes step-children), the tax rate is 60% on anything inherited above €1,594.

In reality, there is little that can be done to mitigate any potential French inheritance tax bill in respect of property assets, once the standard French allowances have been used up. Hence, in such a situation, it becomes very important to shelter financial assets, as part of the inheritance planning solution.

This can be done by using Assurance Vie, which is highly beneficial for:

protecting the survivor;
mitigating the potential French inheritance taxes for your beneficiaries; and
providing you with control over who receives your financial assets after death

For a quirk of historical reasoning, the benefits payable on death from an Assurance Vie investment, fall outside of your estate. For amounts invested before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500 and taxation is limited to 20% on any benefit paid above this amount (although a higher tax rate of 31.25% applies for amounts exceeding €700,000 per beneficiary).

There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be protected and the capital can subsequently pass to your other beneficiaries, following the death of the survivor.

For amounts invested after age 70, the inheritance allowance for all of your beneficiaries is reduced to a total of €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.

Sadly, social contributions are now chargeable on any gain in the policy paid out as a death benefit. Despite this charge, this type of investment is still highly effective for inheritance planning, particularly since Assurance Vie is also personally tax-efficient, since the tax treatment is more favourable than most other types of French investments.

Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.

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 to mitigate the effects of French taxes.

The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter

Enthusiastic feedback from ‘Le Tour de Finance’

By Amanda Johnson
This article is published on: 14th August 2014

For anyone who missed my recent seminars, I will be at The Deux Sevres Show on Saturday 20th September from 10.00am to answer any questions you may have. This ever popular event will be held at La Salle Aluna 21, Lac des Effres, 79130 Secondigny

The recent and successful Le Tour de Finance seminars covered many areas of finance expats encounter whilst living in France, including:

• Recent budget changes in UK pensions and the effect on expats – recent changes have opened up a number of new options, however, specialist advice is important to ensure you receive recommendations right for your situation

• The tax efficiency of your current investments – many people had tax effective investments whilst UK residents, but are these still best value now you live in France?

• Where should I pay my tax? – This is becoming an increasingly asked question due to where you & your family are actually domiciled. Whilst the UK & France have a double taxation treaty, your domicile can have an effect on social charges you are liable for.

• Regulation – Having a relationship with a company who are regulated in the country where you live in very important for financial peace of mind

• Value for Money – In today’s competitive economy, it is important to receive value for money in any advice you receive.

In addition to the above I can also talk to you about how you can plan for your pension now that you are working in France & how recent changes in social charges could impact your current investments & rental income you receive in France or the UK.

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.

By popular demand Le Tour de Finance will be back in the autumn months. Please contact us here for further details.

Inheritance and expats living in France

By Spectrum IFA
This article is published on: 4th August 2014

Quite a few of my meetings with clients new and old recently have focussed on the thorny issue of inheritance. I think most of us are aware that this can cause problems for expatriates living in France. More recently some of us seem to think that the problem is about to go away. It isn’t.

What is true is that we will be able to adopt the laws of succession of the country of birth over the country of residence from August next year. What we have to realise though is that although this is indeed a relaxation of the strict Napoleonic succession code, there are no plans to change the taxation structure that goes with it. Whilst we will then be free to write estranged children (a sad but relatively common problem) out of our Wills, leaving substantial amounts of money or property to non-blood relatives will arouse glee in the ‘fisc’ as they will pick up 60% tax on the vast majority of it.

At this point many of you will be expecting me to veer off on my favourite tangent and harp on about how assurance vie can be the answer to all these ills, but I’m not going to. If that disappoints you, please feel free to drop me a line and I’ll rectify that situation.

Instead I’m going to stay on inheritance, because there are a few other aspects to this inevitable situation that some of you aren’t sure about. At present, children are ‘reserved heirs’. They enjoy special rights, and they have relatively generous tax free allowances that they can use from both parents. Rather unfairly though, step-children do not share these rights. If you die and leave an estate to your stepson or stepdaughter, he or she will pay the full tax rates, with no child tax free allowance.

Another inheritance issue that trips some of us up is what happens when we inherit from our own relatives. Succession tax is payable by a French resident who receives a gift or inheritance and who has been resident in France for at least 6 out of the 10 previous tax years. That’s the bad news. The good news is that under specific provisions laid down by the UK/France Double Taxation Treaty, we are exempt from this tax law as long as the relative was not also a French resident. So if we inherit from a parent, or in fact from anyone who lived in the UK, we do not have to declare this for tax purposes in France. If that benefactor was a French resident though, be prepared to fork out a substantial amount in succession tax.

These are just three of the common areas of confusion that I come across regularly in my discussions with clients. There are many more complicated issues that need to be addressed if you want to have a trouble free transfer of assets when you or your loved ones die. This can be a self-educating process, especially if your family circumstances are relatively straightforward. If not, the best person to approach to establish the facts is your notaire. If your French isn’t up to it, find a notaire who speaks English. There are plenty of them about.

In many cases your financial adviser should be your next port of call, specifically to put in place financial strategies that can help circumnavigate many of the problems. Assurance vie will probably figure highly in this process. It is the ‘aspirin’ that cures many a financial headache.

Are you thinking about starting a pension in France?

By Amanda Johnson
This article is published on: 15th July 2014

I have been working in France for several years and feel I should now be looking at long terms plans & pensions, but don’t know where to start. Can you help me?

There are many people who, like myself, have come to France to work. Once your business is established it is sensible to start to think about your longer terms financial goals:

At what age would I lie to retire or reduce the number of hours I am working?
What UK pension can I expect to receive bearing in mind I am no longer paying National Insurance contributions?
What can I do with any private UK pension pots I have from my time working in the UK?
How much income do I think I will need once I retire in France?
What can I do to maximise my income & minimise my tax when I retire?

A free financial consultation will allow us to cover all of the above questions and look at options based on your personal circumstances, which will allow you to best plan ahead. Several small decisions now, can make a great difference to your future quality of life.

There are no consulting fees for providing you with advice or ongoing service. Our Client Charter outlines how we work and what you can expect from us. Please do not hesitate to ask for a copy of this.

Pilot Loss of License and Loss of Training Expenses Insurance

By Chris Burke
This article is published on: 26th June 2014

Aircrew undergo many years of hard work at substantial expense to attain their aviation license. However, a commercial pilot’s career and income are always at risk should they suffer serious injury or deterioration in health.

Pilots Loss of License Insurance provides financial support should your aviation career end abruptly; it provides stability while you retrain for a new career. Policies are available on an individual basis should your employer not provide it; similarly members can ‘top up’ their coverage in addition to their company’s existing group policy.

Loss of license insurance is specifically designed for pilots. As such, it negates many of the associated limitations of traditional group insurance products. For instance permanent health and critical illness insurance policies may provide limited cover and significantly reduced benefits in the instance of losing your license.

Who can we insure?

We can cover any individual commercial, fixed rotary or wing pilots including flight instructors, who hold a current license and who are gainfully employed, and actively at work.

Alternatively, if you’re interested in a group policy, please email us directly at chris.burke@spectrum-ifa.com

Key benefits

Lump sum payment
Monthly temporary benefit option
Continuous coverage
Full psychological illness cover option available
Market leading cover for alcohol and drug related illnesses
No extra charge for rotor-wing pilots
Worldwide cover

I have worked extensively with aviation companies and individuals alike, please do not hesitate to contact me with any questions.

Click here for a quote on Pilots Loss of License Insurance

Spectrum crosses the finish line with Le Tour de Finance

By Spectrum IFA
This article is published on: 23rd June 2014

The recent Tour de Finance has come to a triumphant conclusion. The latest tour covered nine locations throughout France following other events in Spain and Italy earlier in the year.

The events are a chance for expats to gather in an informal setting to listen to a wide range of financial experts discussing various topics relevant to living overseas as an expat. The sessions are relaxed and are a great chance for expats to meet other like minder people and to also get those valuable questions answer relating to financial issues as an expat.

Le Tour brings together experts covering areas such as QROPS, Taxation, Wealth Management and Investments, together with Currency Transactions, Banking and Health Care Provision.

Le Tour de Finance will be back in the autumn, so if you’d like more information on the future locations please contact us via the form below.

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For more information on Le Tour de Finance, please complete the enquiry form below.

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The Spectrum IFA Group at TED Event

By Victoria Lewis
This article is published on: 17th June 2014

Victoria Lewis, one of Spectrum’s advisers in the South of France and Paris, was recently nominated to participate at a TED event (www.ted.com) in Grenoble.

“It was an honor and a privilege to be nominated as a Speaker by TED, especially when I discovered one of the other speakers was a Nobel Prize winner! I was asked to speak about the global pension situation and the problems faced today by those people wishing to retire early.”

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“TED imposes strict rules on the talk format and each presenter must speaker for 18 minutes. There was an international audience of 300 people, many of whom were executives from international companies, entrepreneurs, scientists and university undergraduates. Fortunately, there was time during the event to answer specific questions from the audience and it was clear that most people had a real interest in improving their financial well-being. “

What’s TED?

TED is a nonprofit organization devoted to ‘Ideas Worth Spreading’. Started as a four-day conference in California 25 years ago, TED has grown to support world-changing ideas. The annual TED Conference invites the world’s leading thinkers and doers to speak and their talks are then made available, free, at TED.com. TED speakers have included Bill Gates, Al Gore, Jane Goodall, Sir Richard Branson, Philippe Starck, and UK Prime Minister Gordon Brown. TEDTalks are posted daily at TED.com.

Le Tour de Finance 2nd leg in France

By Spectrum IFA
This article is published on: 13th June 2014

Le Tour de Finance is getting ready for its second leg starting on 17^th June in Saint Loup sur Thouet. The Tour then weaves its way through Vannes le Port, Tours and finishes in Dijon on 20^th June.

The first leg of the tour was a great success, with large numbers attending all the events with fact filled sessions followed by an opportunity for an informal questions and answers session over refreshments and a buffet.

The relaxed and open forums are a chance to expand your knowledge of personal finance as a resident in France. The panel of speakers are experts in their respective fields and are there to answer questions you may have about strengthening your personal financial situation while a resident in France.

The Spectrum IFA Group is a European leader in professional personal financial advice and will be covering subjects such as; QROPS, pensions, tax advice, investments and wealth management, healthcare, and mortgages.

Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered, plus mingle in a pleasant atmosphere with other expat residents whilst enjoying a complimentary buffet lunch. The free sessions commence at 10.00 and will finish at 14.00.

Le Tour de Finance 2014 second leg:

17th June – Chateau Saint Loup, Saint Loup sur Thouet, 79600
18th June – Mercure Vannes le Port, 56000
19th June – Chateau de Beaulieu, Tours, 37000
20th June – La Cloche Hotel, 14 place Darcy, Dijon, 21025

For further information and to book your place please visit: https://spectrum-ifa.com/seminars/

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QROPS and expats living in France

By Spectrum IFA
This article is published on: 12th June 2014

As part of the March 2014 budget substantial changes to UK pension legislation have been proposed by the UK government, and here our Financial Expert Steven Grover a Partner with the Spectrum IFA Group will guide you through these proposals and what consequences they could have for expats.

So what are the changes that have been proposed and which of these changes have already been adopted ? The majority of the proposed changes are already effective as of the 27 March 2014 which include the following:

New higher income drawdown limits – Drawdown investors have a yearly limit to the income they can draw which is from zero up to the maximum, The maximum amount has increased by 25% (from 120% to 150% of a broadly equivalent annuity) So for instance, an investor aged 65 with a £100,000 pension starting drawdown before these changes could draw a maximum income of £7,080 a year. However if they start from 27 March 2014 this will rise to £8,850.

Flexible drawdown made more accessible – Flexible drawdown allows investors to make uncapped, unlimited withdrawals from their pensions. There are, however, strict qualifying criteria. The main one is that you must already have a secure pension income of at least £12,000 (prior to £20,000 before).

However the £12k income must be “relevant income” so only the following will count:

State Pension, Scheme Pension (so a final salary pension which is fixed), Lifetime annuities, Overseas Pensions (but only overseas state pension or final salary), Pension income provided by the Financial Assistance scheme.

And the following income would not be included as they can change, capital can be spent, investments sold, drawdown income can finish – Rental income, Dividends, Interest, Drawdown pension income, QROPS income, Part time salary.

More flexibility for investors with pension small pots – Now investors aged 60 or over with total pension savings under £30,000 (formally £18,000) will be allowed to draw them as a lump sum. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), and the remaining amount will then be taxed as income. This can only be done once. Investors with individual personal pension pots smaller than £10,000 (formally £2,000, twice) will be allowed to draw them as a lump sum from age 60, which will be taxed as above but can only be done three times.

The following changes have however not come into force and are still in consultation:

Pension Investors will be able to take the whole of their pension as a lump sum (Potentially effective from April 2015) – Currently most investors aged 55 or over can take up to 25% of their pension as tax-free cash (in the UK but this may not be the case for French tax residents), and a taxable income from the rest. There are, however, rules that determine the maximum income most people can draw each year. These restrictions will be removed in April 2015 so pension investors will be able to take the whole of their pension as a lump sum if they so wish, subject to consultation. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), whilst the rest will be taxed as income. Should this come to fruition, it takes away one of the most cited objections to funding a pension.

Lump Sum Death Benefits – The 55% tax charge on certain lump sum death benefits will be reviewed. The Government believes that a flat rate of 55% will be too high, and will engage with stakeholders to review the rules to ensure that taxation of pensions on death is fair under the new system.

QUESTIONS & ANSWERS

What exactly is the government consulting on?

The government is consulting on “Freedom and choice in pensions”. The consultation relates to whether the proposed changes will happen and how. The main points which affect investors with private pensions are:

Ability to take unlimited income from pensions (from age 55, rising to 57 in 2028). The first 25% remains tax free, whilst the rest is taxed as income.
Review of the 55% tax charge on death in drawdown/post 75.
Review of the tax rules that prevent individuals aged 75+ from claiming pension tax relief.
Increase in minimum pension age from 55 to 57 from 2028 and further rises after that so it remains 10 years below state pension age.
A consumer’s right to financial guidance at retirement. • Potential use of (yet to be developed) pension products for social care.

What is the timetable of the consultation?

The consultation will close on 11 June 2014 and the government aims to confirm any changes by 22 July 2014, these changes will potentially be effective from April 2015.

Can I take my pension as a lump sum?

Potentially, yes you could. However it will depend on your individual circumstances and the decision made after the consolation period has closed.

From 27 March 2014 some investors aged 60 or over will be able to take their pension as a lump sum if:

▸ Their total pension savings are under £30,000 (only once), or

▸ They have individual personal pension pots smaller than £10,000(maximum three times)

From 27 March 2014 some investors aged 55 or over will be able to take unlimited withdrawals from their pension (through flexible drawdown) if they can prove they have a secure pension income of at least £12,000 a year (including state pension), instead of 20,000 a year.
From April 2015, if the changes above are confirmed after the consultation, everyone will be able to take their pensions as a lump sum.

What happens to investors already in drawdown?

Investors who started income drawdown before 27 March 2014 will remain on their current maximum income until their next annual review date. If the three yearly GAD calculation is due at that review, their maximum income will be recalculated based on the current fund value and that month’s GAD rate. They will then be eligible to take 150% of the new GAD limit. Clients not due a GAD calculation will simply move from 120% to 150% of their existing GAD rate at their next annual review. These same existing drawdown clients may potentially have their maximum income restrictions removed completely in April 2015 if the proposed changes are agreed following consultation.

What happens to investors who have already bought an annuity?

An annuity cannot usually be cancelled once set up, so you are unlikely to have any further options. However, you typically have 30 days to cancel (cancellation period). The start date of the cancellation period will depend on the terms set out by your annuity provider. Some providers are extending their cancellation period.

So with all of the above changes potentially changing drastically changing the UK pension in Industry, will a QROPS now be less relevant to Expats living in France?

First of all what is a QROPS?

QROPS (Qualifying Recognised Overseas Pension Scheme) was brought about following changes to UK pension legislation on April 5, 2006. This scheme has been specifically designed to enable non-UK resident individuals who have accrued pension benefits in the UK, to transfer these out once they have left the UK. Provided that the UK Registered Pension Scheme and the QROPS provider both have the appropriate transfer authority, individuals who leave the UK and establish a QROPS are able to request a transfer of their UK benefits as long as they can provide evidence they are no longer a UK resident.

Due to the fact that this scheme is an international contract, future benefit payments can potentially be received without deduction of UK tax, however individuals will be responsible for declaring the income in their own country of residence. So those who have moved to France to retire or are thinking about moving to France in the future, and have private or work pension benefits that would have normally been left behind in the UK can benefit from a QROPS Transfer.

What are the key benefits of a QROPS over leaving the pension in the UK?

Pension Commencement Lump Sum – With a QROPS approved scheme the amount of PCLS available at retirement can be up to 30 percent, compared to the 25 percent allowed with a UK pension however this does depend on which one of the approved jurisdictions is used.

Inheritance tax planning – Most people would like to think that, upon their death as much of their assets as possible would be passed on to their heirs. It is a complex issue, however, by transferring to a QROPS the taxation of pension benefits on death can be much less punitive. With the current UK pension rules a UK pension scheme could be a taxed up to 55 percent of the fund value before being passed on. By bringing the pension out of the UK and using a QROPS approved scheme, this tax liability can be greatly reduced or in some cases even wiped out completely.

Age benefits can be taken – Some QROPS jurisdictions will allow you to start taking benefits from your pension at the age of 50, as apposed to 55 years old in the UK.

Currency risk – This is a very important consideration for expats who have retired in France with UK pensions that will pay their pension benefit in sterling, because this means they not only run an exchange rate risk but also will incur charges for converting their pension benefit payments into Euros. By putting your pension into a QROPS you can receive your pension benefit payments in Euro’s and therefore eliminate any exchange rate risk, currency conversion charges and have peace of mind that the amount of income you receive each month will be the same.

Investment choice – By moving an arrangement out of the UK there can be a much wider choice of investments available to the pension fund, with a more global focus which is particularly important in the current market conditions as some existing pension schemes can even be limited to just UK investments.

Is a QROPS still relevant to expat’s in France?

This will unsurprisingly depend on your individual circumstances, but some of the changes in the UK like increased drawdown limits have already been adopted by many QROPS jurisdictions. And when you take into account the other advantages mentioned above, using a QROPS still has a many advantages over leaving the pension in the UK. However as part of the proposed changes are subject to UK Government consultation period, for some individuals it might be the case that it is better to wait until these findings have been disclosed.

This information is only provided as a guide and is based on our understanding of current QROPS regulations, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different. If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)687980941, e-mail steven.grover@spectrum-ifa.com

More pain and no gain from interest rates

By Spectrum IFA
This article is published on: 10th June 2014

The European Central Bank made headline news again at the beginning of June, as it reduced its main interest rate from 0.25% to 0.15% and lowered its deposit rate into negative territory from 0% to -0.1%.

The reduction in the interest rate makes it less expensive for other banks to borrow from the ECB and ‘in theory’ this should result in credit flowing out to the wider Eurozone community. At the same time, the negative deposit rate means that the ECB will charge banks for keeping their excess liquidity on deposit with it. The thinking is that this should discourage the banks from making the deposits and instead, make the money available for lending to households and business thus, encouraging growth.

These measures are part of a package that also aims to increase the rate of inflation in the Eurozone, which continues to fall, as demonstrated by the change in the Harmonised Index of Consumer Prices for May, when the annual rate of inflation fell from 0.7% to 0.5%. However, there are many who think that the current measures are insufficient to turn the trend from continuing towards deflation and feel that more aggressive action should have been taken by the ECB, including an expansion of Quantitative Easing.

What does this mean for savers? There is only one answer and that is “bad news”. Even if the banks do start to lend more money into the wider community, since they can borrow from the ECB at 0.15% to do this, why would they borrow from the public (i.e. the savers) at a higher rate?

We have been living in a very low interest environment for several years now, although this is the first time that the Eurozone has gone into negative territory in ‘nominal’ terms. In ‘real’ terms (i.e. taking into account inflation), we have already experienced negative returns from bank deposits and even the most cautious of investors are now prepared to look at alternatives.

One such alternative is a particular fund in which many of our clients have already invested. Despite the fact that the fund is conservatively managed, over the last four years to the end of May, the Sterling share class has still been able to grow by more than 36% and the Euro share class by 30%. After taking into account annual management charges on the fund, the three year annualised return is around 7% for Sterling and around 5.5% for Euro. A growth fund is also available for those investors who wish to take more risk and USD share classes are available for both the cautious and the growth funds.

The funds are part of those of a large insurance company, which has a history going back for more than 160 years. The company is well capitalised and so clients feel comforted by the safety of investing with such a solid company.

One of the unique features of the funds is the delivery of a smoothed investment return. On a daily basis, each of the funds grows in line with an expected growth rate, which is the rate of return that the company expects the assets in which the funds are invested to earn over the long-term. This approach aims to smooth out the usual peaks and troughs of investment markets and so is particularly beneficial to investors seeking an income from their capital.

It is a well-known regulatory requirement for product providers and investment managers to tell investors that “past investment performance is not a guarantee of future performance”. Whilst this is true, in reality it is only by looking at the past investment performance of a fund that one can really judge the skill of the fund manager. This is not just about how good the manager is at picking stocks – but more importantly – about how risk is managed, particularly through market downturns. Happily, when I am discussing the above funds with clients, I am able to demonstrate the skill of this insurance company by showing a sixty-year history of positive investment returns on an annualised basis over 8, 9 and 10 year periods. This is another reason why cautious investors – who would have previously only ever placed their capital on bank deposit – are very comfortable about switching to this alternative choice.

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 investment of financial assets or on the mitigation of taxes.