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.
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.
Final Salary Pension changes: The Budget 2014
By Chris Burke
This article is published on: 5th July 2014
Further to the UK budget announcement earlier this year regarding UK Final Salary pensions, many are asking what their options are and how best to manage their final salary UK pension. The key concerns people have regarding final salary pensions are as follows:
Security of Final Salary Pensions
90% of UK company pension schemes are underfunded; that is to say the scheme no longer has sufficient funds to pay the full pension entitlement in retirement to all of its members. Due to improved healthcare and quality of life, people are living longer; this creates a greater burden on final salary pension schemes. The retirement age has risen over the years from 55 to 65; life expectancy in Europe has also risen from 67 to 84. Companies used to provide on average 12 years of pension income, now it is more likely to be 19 years.The figures no longer add up and so the ‘pension gap’ continues to widen. For these reasons final salary pension schemes are now mainly closed to new entrants. With no new scheme members, and thus no more contributions, there is no new capital covering the retired member’s incomes. There is a rising concern for how will this deficit be covered in future.
Should I leave my Finals Salary pension in the UK or transfer it out?
If you have a final salary pension in the UK you have three options. You can start receiving your pension before the normal retirement date, usually with a penalty, wait until the normal retirement age and receive an income, which usually rises with inflation, or you can obtain a Cash Equivalent Transfer Value (CETV). In the latter scenario you can exchange the promise of a retirement income for a pot of money you can manage and invest yourself, without the liability of the company scheme’s increasing deficit. Before considering this process, your CETV needs to be carefully evaluated against the benefits of a ‘guaranteed’ income (guaranteed so long as the company and pension scheme remains solvent). This evaluation depends on the return you could expect to obtain from your transferred pot against the currently ‘promised’ income from your current final salary scheme. It is very important to evaluate your options with a qualified financial pension planner to work out the risk, reward and suitability of a pension transfer for your individual scenario. Every personal pension situation needs to take into account your age, company scheme, your family, location and many other factors which are different for everyone.
How do the changes affecting the UK budget this year affect my Final Salary pension?
Perhaps the biggest change in the UK pension budget is that, from the age of 55, you can ‘cash in’ your UK pension while paying the marginal tax rate i.e. the income tax band that applies to you, based on your earnings in addition to the amount of your pension you are withdrawing as a lump sum. (This change is still going through consultation and we will know at the end of July if and when this new rule will be allowed to commence). However, this change applies only to defined contribution pension schemes, so how does this effect final salary pension schemes? Further to the increasing final salary funding gap, the UK government intend to prevent members transferring their final salary pensions into a personal pension cash pot. The main reason is that as scheme members leave, there is less capital and more strain on the scheme to recuperate the deficit for its remaining member’s retirement income. It could decimate the company pension scheme industry if members left at an alarming rate; many jobs would be lost. Therefore, if you want the option of transferring your final salary pension into a personal cash pot pension (defined contribution) your time to do this could be increasingly limited. Some analysts and institutions are forecasting that from late July 2014 transfers will be either blocked or have significant restrictions on who can transfer and where to.
What does all this mean?
If you want the choice of cashing in or transferring your final salary pension after a qualified evaluation of the benefits and drawbacks, you may have limited time to do so. Exiting from a final salary scheme could have a significant impact on your retirement income for better or for worse. The advice given must be founded on a close analysis of your financial needs and residential situation – therefore if you would like to know your options before they may be taken away, we recommend an evaluation as soon as possible.
Other Thoughts
A final salary pension, so long as the scheme is solvent, adheres to the rules of the administrator that created it i.e. an income for life linked to inflation, can be a good scheme. However, a final salary pension transferred into a cash equivalent value could allow much greater flexible benefits, which include, no early retirement penalty, no more currency risk, larger Pension Commencement Lump Sum, higher initial income and security your pension is now fully under your control. Of course, none of this even takes into account the fact that moving your pension outside of the UK means any money left after your death would go to who you choose as dependants, rather than currently a spouse and then predominantly the other company pension scheme members of which you were in.
QROPS Pension Transfer
By Chris Webb
This article is published on: 4th July 2014
If you ever worked in the UK, no matter what your nationality, the chances are you were enrolled in a private pension scheme. The UK government continues to tweak legislative changes affecting the expat’s ability to move this pension offshore. On the surface, these changes appear to limit transfer options, but in reality they have strengthened the legal framework offering expats continuing advantages.
Background
When you leave the UK, if you have a Final Salary pension, then your fund remains valid but is deferred and any increases will usually be limited to inflation until you reach retirement age. The pension income you then receive is taxable in the UK no matter where you are based in the world, you may be entitled to a tax credit if there is a Double Taxation Treaty in the country you reside. Once you die the pension will continue in the form of a spouse’s pension if you are married; otherwise it will cease. When your spouse dies, all benefit payments come to an end.
With a personal pension, if you take any part of your fund and then die before you fully retire, a lump sum can be paid to your spouse. Although this is exempt from inheritance tax there is a special lump sum benefits charge, also known as “death tax”, payable on the remaining fund. This is at the rate of 55% of the benefit amount, although the recent budget changes have advised that this is likely to be reduced in the near future.
In April 2006 Her Majesty’s Revenue and Customs (HMRC) introduced pension ‘A’ day. This liberalised UK private pensions and allowed people leaving the UK to transfer them overseas, often to a new employer. In doing this the UK complied with European legislation which allows all citizens the freedom of movement of their capital. Thus ‘Qualified Recognized Overseas Pension Schemes’ (QROPS) were born.
Implementation
QROPS are not necessarily the right thing in every single case. In order to decide whether it would be advantageous to transfer your pension or leave it in the UK, with the intention of drawing the benefits in retirement, please contact me so that I can carry out a personalised evaluation. There may be compelling arguments, outside of the evaluation alone, which are often overlooked and may affect you in the future.
One of these is that a large number of UK schemes are currently in deficit to the point that they will be unable to pay future projected benefits. This would mean that even though it looks as though there are arguments to leave your UK pension in situ it may actually be wiser to transfer it.
In order for you to make the best decision you need professional advice on what would be the best solution for you. This will entail seeking details of the current UK schemes, including transfer values, the types of benefits payable to you and options going forward when you get to a retirement date and when you die.
I have detailed below some advantages & disadvantages of a QROPS pension transfer, using the jurisdiction of Malta as a reference point.
Advantages
1. Lump Sum Benefits
If you transfer your benefits under the QROPS provisions to a Malta provider, in accordance with the rules of this jurisdiction, you may be able to take a pension commencement lump sum of up to 30% (unless you have already taken this lump sum from the UK pension). Under the current HMR&C (Her Majesty’s Revenue and Customs) rules to qualify for the lump sum option you must be age 55 or over. Your remaining fund is then used to generate an income without having to purchase an annuity. The 30% pension commencement lump sum is only available once you have spent 5 full consecutive tax years outside of the UK (in terms of tax residence), if you are within the first 5 years, we strongly advise you to limit the pension commencement lump sum to 25%.
2. No Liability to UK Tax on Pension Income
A non UK resident drawing a UK pension remains subject to UK tax on the income, unless he or she resides in a country that has a Double Tax Treaty (DTT) with the UK, which contains an article on pensions that exempts the pension from UK income tax. Transferring under the QROPS provisions ensures that, if tax is due on pension income, it will only be taxable in the country of your residence.
3. No Requirement to Purchase an Annuity
There is no longer a requirement to ever purchase an annuity with either your UK pension or in the event you make a transfer under the QROPS provisions.
Whilst the UK Government changed its pension rules in April 2011 so that you can now delay taking your pension indefinitely, in the event of your death after age 75 you are treated as if you had already taken benefits (whether or not you have actually done so) and there would be a 55% tax charge on the funds paid out to heirs. With a Malta QROPS there is still no need to purchase an annuity, however you must start to draw an income from age 70. The Pension commencement Lump Sum must be taken by this age or the option to take it after this age is lost.
4. Secure Your UK Pension Pot
Some defined benefit schemes in the UK are in deficit. Since the deficit forms part of the balance sheet of the company, this can present a huge risk to your pension fund. Transferring your UK benefits under the QROPS provisions could enable you to have full control of these funds without worrying about the financial situation of your previous employer.
5. Ability to Leave Remaining Fund to Heirs
Standard UK pension legislation significantly restricts the member’s ability to leave the pension fund to their heirs on death, except if death occurs before age 75 and no benefits have been paid to the member. Otherwise if a member has started to draw benefits prior to age 75, the remaining fund can still be paid as a lump sum to heirs, but less a tax charge equal to 55% of the lump sum (increased in April 2011 from 35%). If the member dies after age 75, then the tax charge remains at 55% (reduced in April 2011 from 82%) whether or not the member has received any benefits.
A transfer under the QROPS provisions will allow the member to leave lump sums without deduction of tax to heirs as can be seen more easily from the table below.
UK Pension
| Age | Benefits from Pension | Tax On Death |
| 55+ | PCLS | 55% |
| 55+ | Income* | 55% |
| 55+ | PCLS & Income** | 55% |
| 55+ | No PCLS, No Income*** | 0% |
| 75+ | PCLS, Income or nothing | 55% |
QROPS – Malta
| Age | Benefits from Pension | Tax On Death |
| 55+ | PCLS | 0% |
| 55+ | Income* | 0% |
| 55+ | PCLS & Income** | 0% |
| 55+ | No PCLS, No Income*** | 0% |
| 75+ | PCLS, Income or nothing | 0% |
PCLS – (Pension Commencement Lump Sum)
This table is based on the aim of paying out the remainder of the pension fund as a lump sum death benefit. There may however be other options than providing a lump sum death benefit.
*This is based on the remaining lump sum being paid out as a death benefit. A spouse could transfer the pension into their name and continue the income drawdown.
**There is an option of phased drawdown where you could take part of your PCLS allowance and part income. The remaining portion of the fund that you have not taken the PCLS or income from could continue to be paid out with no tax up to the age of 75.
***There will be no tax up to the age of 75 if you have not taken any benefits from your plan.
6. Currency
A standard UK pension will usually only be invested and pay benefits in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in converting the pension payments to the currency of their country of residence.
A transfer under the QROPS provisions means that the pension payments can be made in the local currency, thus potentially eliminating exchange rate risk
7. Lifetime Allowance Charge (LTA)
This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1.5m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement at any time when there is a “benefit crystallisation event” that exceeds the LTA. A benefit crystallisation event is any event which results in benefits being paid to, or on behalf of, the member and so includes transfer values paid to another pension scheme, as well as retirement benefits.
The UK Government have advised that the LTA will be reduced to £1.25m from 6 April 2014. (This was reduced in 2012 from £1.8m to £1.5m).
There is no LTA within a QROPS so transferring larger plans to a QROPS may not be caught in this reduction in the future. Careful planning will be needed with your adviser if you are close to the limit in the UK.
Disadvantages
1. Charges
If you have a pension(s) with a combined transfer value of less than £50,000 then the charges may be prohibitive.
2. Loss of Protected Rights
A transfer under the QROPS provisions may result in the loss of certain protected rights, including Guaranteed Annuity Rates, Guaranteed Minimum Pension, a protected enhanced lump sum, or rights accrued under a defined benefit scheme. (These are shown in the section “Analysis of Your Existing Pensions”).
3. Returning to the UK
If you return to the UK, then the QROPS administrator will have to report this ‘event to HMRC and the pension scheme will become subject to UK pension regulations again.
If it is your intention to return to the UK in the near future then a transfer under the QROPS provisions is usually inappropriate.
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
Tax Returns, Pensions & Seminars
By Spectrum IFA
This article is published on: 28th April 2014
What do the above have in common? Well nothing really except they are all topical now! Let’s start with tax returns ……..
I was really surprised to receive the French tax forms so early this year and then I realised why. The date for submission of paper returns has been brought forward to 20th May or if you submit your declaration over the net, then you have until 27th May to do this. Does this mean that we are going to get our tax demands a week or two earlier this year and perhaps with an earlier deadline date for payment? Well I guess that we will just have to wait and see.
No-one should ever try to second guess the Fisc or think that they can out-manoeuvre this government department. I hear some interesting stories of people being contacted and questioned about why they are not registered in the French tax system. You would be amazed at what is used to check – telephone bills, utility bills, etc., etc. How long will it be before our use of cash machines and our bank and credit card transactions in shops might be used to verify how much time we spend in France? Scary thought and actually they probably don’t need to go that far, as we can be tracked through our mobile phones and probably also our internet use.
Are you convinced now to register in the system? You’re still not sure if you are resident? OK, call me and with just a few questions, I will be able to tell you.
For those of you completing French income tax returns, don’t forget to include a list of foreign bank accounts and life assurance policies. You don’t have to declare amounts (unless you are subject to wealth tax), only the existence of the accounts and policies. If you don’t, the penalty is at least €1,500 per undisclosed account/policy or €10,000 if the bank account is in one of those uncooperative States or territories that have not concluded an agreement with France to exchange information. So even if it is an account that does not pay interest and there is very little in the account, declare the existence or risk the penalty!
Moving on to the other ‘hot topic’ of the day ……… I am already hearing about lots of people who are being cold-called about the UK pension reform. Apparently, these calls are being made by people operating from Spain or Cyprus or perhaps some other place. Typically, they are offering to liberate your UK pension plans now. What do these people know about the French tax system and the implications for you? For that matter, do they even understand the UK tax implications for you?
Rob and I have both written articles on this subject and I hope that we are sending out a strong message of the need to exercise caution. Every case will need to be considered on its own merits – there will be no ‘one size fits all’. Anyway being able to cash in large pension pots is only a proposal at the moment. We will have to wait for the result of the consultation and then probably a few months more to know the outcome. So if you get any of those calls coming from outside of France, my advice is to tell them not to waste your time!
The final thing that I want to mention is our client seminars – Le Tour de Finance. This is a tour that travels around France, where we bring ‘experts to expats’ and we are now taking bookings for the Spring tour for which there will be presentations on the following subjects:
- Assurance Vie (two of our favoured providers will be presenting)
- QROPS & Pension Investing (very topical)
- Currency Exchange (is this a good time to exchange Sterling to Euros?)
- Health Insurance (are you affected if the UK stop issuing S1s to early retirees?)
- Wills in France & UK (are you affected by the EU succession rules from 2015?)
- International Banking (do your current bankers meet your needs?)
- Tax Advice in France (do you need help with those tax returns?)
Spectrum advisers will also be on hand at all events to answer questions. Maybe you need to have a more in-depth review of your financial situation. If so, we can arrange this with you.
As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch/refreshments. The dates for the local events are:
- 21st May – Hotel La Villa Duflot, 66000 Perpignan
- 21st May – Hotel Abbaye École de Sorèze, 81540 Sorèze
- 22nd May – Côté Mas, 34530 Montagnac
- 23rd May – Montpellier Massane Golf & Spa Hotel, 34670 Baillargues
Each event starts at 10.00 am with a welcome coffee and ends at 2.00 pm after a buffet lunch, with the exception of Sorèze, which starts at 5.30 pm, finishes at 9.00 pm and refreshments will be served. The seminars are always very popular and so early booking is recommended.
If you would like to attend one of the seminars or you would like to have a confidential discussion on your financial situation, please contact me by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.
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 the mitigation of taxes.
Why expats should be wary of new pension rules
By Spectrum IFA
This article is published on: 16th April 2014
There are tax implications for Britons overseas who choose to cash in their pension money under new rules announced in the Budget.
British expatriates with UK pension pots who believe they can cash them in tax free from next April are in for a disappointment, according to pension experts.
Rob Hesketh from The Spectrum IFA Group comments in a case study within this Telegraph Newspaper article, please click here to read more
Producing Income from Your Investments
By Peter Brooke
This article is published on: 13th April 2014
If you’ve managed to put aside money for your retirement, good job — no one else has been saving for you. But how do you change the balance of your assets to be able to draw an income to supplement a smaller, land-based income or to pay for your lifestyle into retirement?
* Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.
* Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.
* Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longerterm assets (property, equities, etc.) to help grow and replace the funds you withdraw.
Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.
Expat tax break threatened, spelling bad news for pensioners
By Spectrum IFA
This article is published on: 11th April 2014
The UK government’s assault on the finances of British expats continues as it threatens to review their personal tax allowances.
Many of the five million Britons living and working overseas may have missed the announcement in the Budget mid March, that personal allowances for non-residents are set to be reviewed.
Daphne Foulkes comments in an article for the Daily Telegraph Expats personal finance section, read more here
Pension changes – who benefits?
By Spectrum IFA
This article is published on: 8th April 2014
Since my last article we’ve enjoyed absorbing the somewhat spectacular aftermath of the UK budget. Spectacular that is if you’re into pensions and all that stuff. I am, and I’m absolutely fascinated by what is going on at the moment in the world of pensions. Daphne is the technical expert on all of this of course , with many qualifications and huge experience in the field, and she gave us all the technical low down in her last article. I’d just like to add my thoughts on why this might be happening.
I do find it somewhat odd that George Osborne seems to have sent a clear message to HMR&C to prepare full a full blown retreat and reversal of the policies that they have pursued avidly over the past eight years. In case you are not aware, April 2006 was ‘A’ Day, when the whole pension industry was overhauled, and QROPS, already born, was really launched on the UK expatriate market. Saving for your retirement was of paramount importance, and woe betide any financial adviser who dared to try to help a client access their pension funds contrary to the terms approved by HMR&C.
I need to say here that I am completely anti pension busting. My strong view is that the UK State Pension is pitifully ill equipped to provide us with anything like a comfortable retirement. Those of you who are lucky enough, or who have been diligent enough to create a decent pension fund are to be congratulated and encouraged to continue in a similar vein. Pension busting advisers are not acting in the clients’ best interests. They are in fact acting completely in their own interest; looking to create income and commission where it is not due.
We are (mostly) living longer, and will need to fund longer periods of retirement. Accelerating the pace at which we spend our retirement savings is going to end in tears. It’s a bit like telling a child who is allowed to buy one bag of sweets a week that he or she can eat them all on day one. And now we have a new pension buster on the block, Mr George Osborne himself. The proposals outlined in the budget remind me very much of the government’s war on drugs and drug related crime. A drug ‘Tzar’ was appointed a few years ago who after a couple of years of beating his head against a brick wall decided that the best thing to do would be to legalise all class A drugs and make them freely available. I’m not sure if he suggested an suitable tax rate at the same time, but it wouldn’t have surprised me if he did. Fortunately public outcry defeated that move, but I’m not sure that the same will happen this time round. This is all about money in your pockets, and that is a powerful lobby.
What worries me most about these proposals is the reason behind them Please don’t think for one minute that kind Mr Osborne is looking to make life easier for us by removing restrictions on when and how we access our pensions. What he is actually looking to do is raise his tax yield. 55 years old? A couple of hundred grand in a pension pot? Why don’t you take it all out and splash it about a bit? Treat yourself to that holiday; that car; that boat. Help your children progress up the housing ladder, or help your grandchildren get on the ladder. Tax?, sure, you’ll have to pay high rate tax when you take it, but doesn’t nearly everyone pay high rate tax these days?
Surely there’s a problem here? Why would the government want to stoke up problems for themselves in the future? Surely they don’t want droves of hard up pensioners clamouring for state aid in their final decades because they’ve spent all their money. I’m afraid the answer might be that the government doesn’t really care. One thing we’ve missed in all of this is the other pension proposals that have been going through. A raise in the general level of state pension yes, but the complete erosion of many other benefits that have always come to the aid of pensioners who can’t cope. The message now is ‘Here is your £7,000 a year. Don’t come back asking for more, because there isn’t any.’
So if the benefits system is largely to be dismantled, surely it makes sense to the government to try to get its hands on as much of the pension savings that currently exist as they can? They wouldn’t do that, would they? I think the bottom line here is that we are seeing just how interested the government is becoming in our pension savings. QROPS allows you to move your pension fund out of UK jurisdiction; have more control, and eradicate all sorts of risks. I think we should be looking very carefully at protecting our futures.
Yes, you can retire before your 40th birthday
By Victoria Lewis
This article is published on: 7th April 2014
What if you didn’t have to wait until you were in your mid-sixties to retire? What about 50, or even just as you hit your 40th birthday? Don’t laugh — with enough dedication, you could say goodbye to your full-time job years sooner than you think.
“We all dream of retiring early with a fantastic pension and no money worries,” said Victoria Lewis, a financial adviser with the Spectrum IFA Group in Paris, France. You just have to put the right plan in place.