Viewing posts categorised under: Pensions

UK Pensions – Spend it or Save it

By Spectrum IFA
This article is published on: 25th October 2014

25.10.14

I make no apology for returning to one of my favourite topic this week – pensions. I am quite frankly aghast at what is going on in the UK at the moment. I expect that many of you might recognise this quote from our esteemed Chancellor:

‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan.’

Fine words indeed, but this is what I think is really going on:

‘There are many people who have worked hard and saved all their lives, and I need to get my hands on that money. I can’t steal it, this isn’t Cyprus after all, but if I let you spend it, just think of the tax revenues I’ll rake in’.

Actually, I really feel sorry for the Pensions Minister, whose job it is to encourage saving via pensions. He really must feel as though he’s the bandmaster on the Titanic, and he’s never had to perform on a sloping deck before.

I have a whole list of problems with this new course being set by the government (note the continuing nautical theme there…). Firstly, we all know how deadly boring pensions are when we’re young. We’ve all been there. Yes, I know I should save, but I have a life to lead, and it’s not cheap. The older you get; the more interesting pensions become. You just have to hope that you see sense before it’s too late. But what happens for the future generations? If you can access your pension fund whenever you want to, why bother?

Pensions instil discipline, or at least they used to. In my view, a pension fund isn’t even really your money. It is money that you give, or somebody else gives for you, to an independent body (a trustee) who will look after that money for you and let you have it back in sensible tranches so that it will support you for the whole of your post working life. Not everyone has one, but if you don’t you have to rely on independent means, and the UK State pension. You’d better have both, because the State pension isn’t going to fund much of a lifestyle.

What will happen from next April is a projected boom in capital spending, and the idea is that it’s you who will be spending your capital. Stand by for a blitz of promotional activity, in the UK at least. Car port; house extension; conservatory; double glazing; new driveway, new car; new anything, you’ll be urged to buy it. If you can’t face all the pressure, you’ll be offered a world cruise to get away from it all. Anything that means you spend money, and in the process pay more tax.

To my mind, this is madness. Back in the old days (showing my age here), you could rely on GAD to act as a moderator, controlling how much money you could sensibly use. GAD stands for The Government Actuarial Department, and is manned by an army of very clever qualified actuaries, basically expert mathematicians. Their job was to work out how much you could draw from your pension, whist at the same time ensure that your pension would outlive you. In other words, the pension would always support you. You were allowed to draw any percentage of ‘GAD’, as this figure became known; any percentage that is up to 100%. Don’t confuse that with 100% of your pension, which is what we’re looking at now. This 100% meant the maximum you could take out of your pension without it bleeding to death.

As the brake cable was gradually severed, that GAD figure became 120%, then 150%, and now we have the next logical step in the descent into eventual poverty.

I’m having none of this nonsense. I decided in 2006 to transfer my personal pension out of the UK into a QROPS, and I’m very glad I did. Last year I discovered that a smaller pension, which had been awarded to me as a result of the mis-selling scandal in the 1980s (interestingly I didn’t think that I had been mis-sold anything), had grown to a reasonable size, and was due for payment (another age clue).

In line with strict Spectrum IFA Group standards, I have sent all the details of this scheme to my pension team in head office, who are conducting a full review of all the terms and conditions relating to it. They will shortly provide me with a full report, and unless there is anything in that report to indicate that a transfer would be unwise, my pension will follow the original one out of the UK jurisdiction to a safer haven, free from meddling politicians and pushy salesmen.

Remember pension busting? That was all about rogue financial advisers, if you can call them that, urging you to take your pension abroad, where you would be shown weird and wonderful ways to access (illegally) your pension fund. How times have changed. Now you are being urged to at least consider taking your pension abroad with a reputable financial adviser, in order to protect it from the biggest pension buster of all time, the UK government.

If you have any questions on this, or any other subject, please don’t hesitate to contact your local adviser

Planning to retire to France?

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

Retiring to France can be dream come true for many people. The thought of that ‘place in the sun’ motivates us to save as much as we can whilst we are working. If we can retire early – so much the better!

In the excitement of finding ‘la belle maison’ in ‘le beau village’, we really don’t want to think about some of the nasty things in life. I am referring to death and taxes. We can’t avoid these and so better to plan for the inevitable. Sadly, some people do not plan in advance and only realise this mistake when it is too late to turn the clock back. For example:

Investments that are tax-free in your home country will not usually be tax-free in France. For example, UK cash ISAs and National Savings Investments, including premium bond winnings would be taxable in France. So too would dividends, even if held within a structure that is tax-efficient elsewhere. All of these will be subject to French income tax at your marginal rate (ranging from 0% to 45%) plus social contributions of 15.5%.
Gains arising from the sale of shares and investment funds will be liable to capital gains tax. The taxable gain, after any applicable taper relief, will be added to other taxable income and taxed at your marginal rate plus social contributions.
If you receive any cash sum from your retirement funds, for example, the Pension Commencement Lump Sum from UK pension funds, this would be taxed in France. The amount will be added to your other taxable income or under certain conditions, it can be taxed at a fixed rate of 7.5%. Furthermore, if France is responsible for the cost of your healthcare, you will also pay social contributions of 7.1%.
Distributions that you receive from a trust would also be taxed in France and there is no distinction made between capital and income – even if you are the settlor of the trust.

As a resident in another country, it would be natural for you to take advantage of any tax-efficiency being offered in that jurisdiction, as far as you can reasonably afford. So it is logical that you would do the same in France.

Happily, France has its own range of tax-efficient savings and investments. However, some planning and realisation of existing investments is likely to be needed before you become French resident, if you wish to avoid paying unnecessary taxes after becoming French resident.

I mentioned death above and as part of tax-efficient planning for retirement, inheritance planning should not be overlooked. France believes that assets should pass down the bloodline and children are ‘protected heirs’ and so are treated more favourably than surviving spouses. Therefore, action is needed to protect the survivor, but this could come at a cost to the children – particularly step-children – in terms of the potential inheritance tax bill for them.

Whilst there might be a certain amount of ‘freedom of choice’ for some expatriate French residents from August 2015, as a result of the introduction of the EU Succession Rules, this only concerns the possibility of being able to decide who you wish to leave your estate to and so will not get around the potential French inheritance tax bill, which for step-children would still be 60%. Therefore, inheritance planning is still needed and a good notaire can advise you on the options open to you relating to property.

For financial assets, fortunately there are easier solutions already existing and investing in assurance vie is the most popular choice for this purpose. Conveniently, this is also the solution for providing personal tax-efficiency for you. There is a range of French products available, as well as international versions. In the main, the international products are generally more suited to expatriates as a much wider choice of investment options is available (compared to the French equivalent), as well as a range of currency options (including Sterling, Euros and USDs).

Exchange rates should not be overlooked. Currently, we are living in an environment whereby, for example, the Sterling Euro exchange rate is strong and so people are feeling fairly relaxed about this. However, it does not seem to be so long ago since the rate was close to parity. Unless you transfer your pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) – which is too broad a subject to cover here – your pension income is always likely to be subject to exchange rate risk.

It is possible to have a UK State pension or US Social Security paid direct to your French bank account (and the exchange rate is usually very good), but this may not be the case for other pensions that you receive. Therefore, you should consider using a forex company, since these companies will usually give a better rate than banks.

It is very important to seek independent financial planning advice before making the move to France. A good adviser will be able to carry out a full financial review and identify any potential issues. This will give you the opportunity to take whatever action is necessary to avoid having to pay large amounts of tax to the French government, after becoming resident.

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.

UK Pensions and Non-Residents

By Spectrum IFA
This article is published on: 18th August 2014

A couple of things have come out of the UK government’s office recently. Both are important, but for some expatriates, one of these is going to have a bigger impact than the other.

The first was the result of the consultation on the UK pension reform, which was published in July (and we can now expect a Pensions Bill in the Autumn). The outcome is that not much has changed from what had already been proposed, which you can read about in my previous article at https://spectrum-ifa.com/proposed-uk-pension-changes/

However, a couple of things have been fine-tuned. For example, the age from which you will be able to take your total pension pot as cash on the grounds of triviality will be possible from age 55, rather than the current age 60. Also for those who still prefer the security of a lifetime annuity, the rules will be changed to allow a longer guarantee period than 10 years but of course, this will reduce the amount of the annuity at start.

One important point that has been clarified concerns pension transfers from Final Salary Schemes to Defined Contribution Schemes (DCS). We now know these will still be allowed, but only from those schemes that are funded. Therefore, members of unfunded public sector defined benefit schemes will not be allowed to transfer their benefits to a DCS. This may not appear to be an issue – after all who would want to transfer their pension benefits out of such schemes? In effect, the government – or in reality, the UK taxpayer – underwrites the cost of these pension schemes.

Well this brings me to the second ‘thing’ …….

……. non-residents could lose their UK tax-free allowance on UK taxable income.

For those of you who have not already picked up this news, this is something that could come into effect in April 2015. A consultation has been launched by the government with a deadline of 9^th October for interested parties to respond.

For French residents, this concerns those who are receiving public sector pensions, UK property rental income and/or UK earnings. If it comes into effect, the result will be that for a basic rate UK tax payer, unless your average tax rate in France is at least 20%, then your combined UK and French tax bill will be higher. This is because the method that is used to give relief from double taxation in France, limits the amount of that relief to the amount of French tax attributable to such income. Based on the 2014 rates, for a couple in France this would mean that they have to have combined taxable income of at least €112,000 per annum or for a single person, at least €57,000. If you are below this level, then you would be affected.

My initial reaction to the above was that those with public sector pensions are being treated unfairly. They cannot transfer their pension benefits out of the current scheme and so are forced to be subject to UK tax with the possibility of paying up to £2,000 a year more (based on UK 2014-15 rates), but they are unlikely to get the full relief from France. However, thankfully, the UK government has recognised that as the public sector pensions are, in theory, only taxable in the UK, then it is quite likely that entitlement to the personal allowance will be maintained.

Sadly, not so for property rental income (or earnings), as the UK government considers that people will usually be also liable to tax in their country of residence. However, the method of the calculation used to give relief from double taxation is identical for all these three categories of income, which is based on taking in to account the gross amount of income (i.e. before UK tax deduction). Had the previous method of calculating the relief still been in operation, there would not be any potential issue, since the calculation used the amount of income after deduction of UK income tax.

The other change that is taking place in the UK that affects non-residents who own property is the introduction of capital gains tax for properties sold after April 2015. When combined with the potential increase in UK income tax on any property rental income, this makes holding property for investment purposes a lot less interesting.

Are you affected by these changes? If so, please feel free to contact me if you wish to have a confidential discussion to see if your situation can be improved.

Now is also a good time to mention that we are taking bookings for our Autumn client seminars, which will be taking place across France – “Le Tour de Finance – Bringing Experts to Expats”. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:

Financial Markets
Assurance Vie
Pensions/QROPS
Structured Investments
French Tax issues
Currency Exchange

The date for the local seminar is Friday, 10th October 2014 at the Domaine Gayda, 11300 Brugairolles. This is always a very popular event and so early booking is recommended.

But if you are reading this further afield, you may be interested in attending one of our other events:
Wednesday, 8th October – St Endréol, 83920, La Motte, the Var

Full details of all venues can be found on our website at Le Tour de Finance

Places for our seminars are limited and must be reserved, in advance. So if you would like to attend one of the events or you would anyway like to have a confidential discussion about any aspect of financial planning, please contact me either by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.

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

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.

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

13.04.14

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.