Tin Hat Time at the FCA
By Derek Winsland
This article is published on: 1st August 2016
In the wake of the fourth Parliamentary Review into the Financial Conduct Authority and its handling of high-profile incidents, comes the latest criticism from the Financial Services Complaints Commissioner who accuses the FCA of “an unwillingness to face up to and address its shortcomings”. He went on to say he had seen a tendency at the FCA to find reasons for excluding cases from the complaints scheme in circumstances where they should not have been excluded. Oh dear, smacks of Big Brother getting too big for his boots and believing itself to be above the law?
It is currently squirming with embarrassment over the antics of Sir Phillip Green and the BHS pension scheme, and this is fostering the belief in the industry that it is too focussed on the advisory sector and overlooking the problems that Pension Freedoms is having on occupational pension schemes, especially Defined Benefit (DB) or ‘final salary’ schemes.
You will no doubt be aware that the legislation passed in April 2015 relaxed the rules over how benefits could be taken from pensions. Gone was the insistence that a “pension is a pension – its job is to provide your income in retirement.” Although this is true, the old-fashioned rules take no consideration of lifestyle and personal choices. A casualty of this new form of thinking is the annuity, where you handed over your pension pot to an insurance company in return for an income for the rest of your life. A great concept except that the insurance company kept your money when you died. Under the new rules, you could use your pension pot to draw income off in retirement (or even before retirement now). This ‘income’ could be regular or ad-hoc in support of other income like state pensions for example.
Crucially, the new rules addressed the world in which we live and choose to live. An example of this could be where a member of a DB pension scheme (or a number of schemes over his/her working life) may decide on a change of career, to move to France to buy a property with an attached Gite to rent out. That is a lifestyle choice that perhaps suits that individual. Personal choice.
Under current (and out of date) FCA thinking, the default assumption is that it would not be appropriate for that individual to transfer the accrued benefits from such DB pension schemes, unless it can be proven that such a transfer is in that client’s best interest. How is this tested? Through the Transfer Value Analysis System or TVAS. Results are shown in the form of critical yields and hurdle rates. Sound complicated? You bet! Except it doesn’t allow for lifestyle choices or individual circumstances, which to the member are of far more importance. As advisers we’re told we must advise and inform the client of what’s in his or her best interest, even if it doesn’t gel with that person’s view. Believe me, those conversations are not easy. The FCA, meanwhile, sits in Canary Wharf, navel-gazing while all this is going on. The more cynical amongst us think the FCA has far more on its plate like finding ways to boost its coffers now it’s been told to stop bank-bashing and fining them for their latest misdemeanours.
There is hope on the horizon, however. The new chief executive of the FCA, Andrew Bailey has promised a greater focus on pensions, hopefully this won’t be an exercise in covering their backsides, but rather a genuine attempt to move with the times, providing much-needed and valuable guidance to the people they serve, the consumer. Let’s all hope that this is sooner rather than later and that the FCA doesn’t get distracted too much wrestling with the bear called Brexit.
If you would like more information on our view of how the investment markets are likely to play out into the future, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Some alternative BREXIT thoughts and why Italy could be next
By Gareth Horsfall
This article is published on: 12th July 2016
The last couple of weeks entertainment have taught me that there are decades when nothing happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views in this E-zine.
I also want to write about why Italy could be next in line. (Any ideas on what to call it, Exaly, ItIt?)
One thing appears to be much clearer to me now and that is that the vote on June 23rd was basically the ordinary people of the UK telling the ‘establishment’ that they have had enough of austerity and want change.
This shouldn’t come as a surprise after 8 years of government and central banks supporting bailed out banks (TARP, LTRO, LTRO2, QE, ZIRP, NIRP to name a few of the easing programmes that have been employed!) allowing huge corporate bonuses to continue, destroying income from savings with low interest rate policies and more austerity/taxes for you and I. Conversely the uber rich and corporates have seen asset price rises, an increase in offshoring and consistent tax breaks. Warren Buffet is quoted as saying that he would be happy to pay higher taxes and cannot understand why he pays a lesser percentage of personal tax than a nurse. It seems that since the financial crisis of 2008 there has been one objective: to save the financial industry at all costs.
With all this in mind is it any wonder that the average working man in Northern England is ‘not’ concerned about the consequences of BREXIT; a possible fall in house prices, a loss of jobs in the City, a 10% fall in share prices. These people are immune to this kind of pain. For this person BREXIT probably seems like a bonus. An opportunity to put a finger up to the establishment and David Cameron who have not protected their interests as they should have.
The working class man from Northern England may be immune to the pain of people who have assets, but financial markets are not, and they have reacted as you would expect. (Admittedly they have rebounded in the last few days). This affects the middle class, who also have assets. Expect more volatility to come.
This could all signify an end to economic policy being controlled by academics and economists.
BREXIT: In two minds
Continue with the status quo; economic tranquility and pushing the economic pain further down the road, in reality to the next generation or, should I be a supporter of BREXIT’s ‘economic’ possibilities and what it could ultimately deliver: higher interest rates, debt defaults, inflation, possible asset price falls (no one really knows what will happen here), higher taxes in the short term, vast privatisation of public assets and reduced benefits, with the aim of normalising world economic affairs through short term pain, long term gain. My problem with BREXIT is that I don’t think that the average man in Northern England who voted out actually understands that this is what it actually signifies and if they did then would they really have voted out?
In the end that decision will be made by the people, but let’s not think it is only isolated to the UK. Donald Trump is making similar inroads into the old industrial heartlands of America. Don’t be surprised to see him as President of the USA later in the year. Marine Le Pen in France and Movimento 5 Stelle in Italy (although they have now come out in support of the EU, but with radically changed policies).
Which brings me nicely onto Italy. I have had the BREXIT conversation with many people since then and I have been surprised to hear the reactions from Italians. I can give 5 cases when each person considered their future better outside the EU. A fascist man running a stabilimento (no surprise there then!); a right leaning hairdresser from Naples, devout catholic and openly critical of the influx of immigrants (in my opinion you could call him racist with some of the views on non Italians); a centre right voting physiotherapist with 3 children and self employed; a self confessed communist psychiatrist (with 3 houses and a house in the centre of Rome paid for by her father); and a cartoon animator, living hand to mouth, who is an open supporter of M5S and a vote to exit from the euro and the EU.
All have their own reasons but essentially the same rationale. When the euro was introduced everything doubled in price and wages halved. They seem to think a vote to leave is a way to turn back the clock. That nostalgic feeling…’taking back control’. We have heard that somewhere before!
The reality is likely to be quite different and would reflect the UK’s immediate future if they do exit from EU (I am still not convinced they will). However, the point is that they all feel let down by the EU and would be better off without it.
So, where does this lead us to. A huge inflection point for Italy will come in October. Renzi has proposed a Constitutional change which will essentially liberate the Government from the current two chamber system and allow one party rule for a 5 year period, in much the same way as the UK and the USA.
If this Referendum should fail to be approved by the people then Renzi has stated that he will step down as Prime Minister.
The problem for Italy is that:
- It will likely return to less than 1% economic growth, and for a country that has hardly grown since the introduction of the Euro in 1999, that would not be good
- Italian banks do not have enough capital to weather a storm of that nature. They are sat on €360 billion of non performing loans (a third of the size of the Italian economy). If Italy voted out of the EU, Banca Italia would have to print that money to re-liquidate the Italians banks and that would lead to some pretty spectacular inflation
- And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space
This is going to be a trying time for Italy, the EU and the UK. I would suggest that this IS the EU’s ‘moment’. If it can survive this then it will pull through, if not then it will fall apart.
So in all this mess and future potential mess what should we be doing with our money. GOLD and the US Dollar. These are things that will weather the storm. How and in what to invest to get best access to these assets is a subject for another time.
Concerns over effect of BREXIT on expat pensions
By Graham Keysell
This article is published on: 5th July 2016
The decision by UK voters to leave the European Union could have far-reaching consequences for pensioners living abroad.
This is especially the case for those receiving UK state pensions, but who are living in another EU member state.
The main uncertainty is whether state pensions will continue to benefit from annual increases.
As at September 2014 there were 1.24 million people receiving British state pensions but living outside the UK.
Approximately 560,000 expat pensioners live in countries such as Australia, New Zealand, Canada and South Africa, where their state pension is frozen at the amount it was when they left the UK.
Is it going to be the case that British expats living in EU countries such as France or Spain will find themselves in a similar position?
Since 1955, pensions have been paid worldwide, but there was never any mention of annual increases.
However, in the period to 1973, reciprocal arrangements were made between the UK and 30 other countries, which allowed for annual increases to be paid in certain countries. This was seen as making it easier for people to move freely between countries during their working life without suffering penalties in retirement for doing so.
Very few new agreements have been signed since, possibly because the EU rules meant that there was no need for them between EU countries.
Pension increases
Pensioners living in the EU, Norway, Iceland and Liechtenstein do get increases, but there is no guarantee that this will continue following Brexit.
Inevitably, the UK government will be tempted to save money by ending the increases to pensioners living in the EU.
It is already estimated that the Treasury saves around half a billion pounds a year from pensioners excluded from the increases. This could easily double if pensioners in the EU were to be treated similarly.
The number of overseas voters still on the UK electoral register is negligible, so the government might decide that upsetting these people would have a very modest negative effect. One result could be that more expats would get themselves back on to the UK electoral register (if it were possible for them to do so).
There is also the question of people who are planning to retire to a EU country in the future. They might show their dissatisfaction at the ballot box.
Another reason for the government might not stop the increases is the possibility of large numbers of pensioners living in the EU finding that they have no choice but to return to the UK
If access to free healthcare in the host country was also abolished, the UK government could easily find that significant numbers of pensioners return to the UK, which is a situation it would want to avoid.
For this reason, it is to be hoped that state pension increases will be paid, and there will almost certainly be considerable pressure on the government to find a way to preserve the existing system.
British Chamber of Commerce, Spain and The Spectrum IFA Group
By Spectrum IFA
This article is published on: 3rd July 2016
Here in Spain, the British Chamber of Commerce (BCC) is a very strong and successful organisation. In fact, it has just won an award for being the best Chamber in the World for promoting British trade! It was therefore no surprise to hear that the Summer Cocktail was UK themed and included Mini Cars, Scottish Beers and British Gins, amongst other things.
At the party, The Spectrum IFA Group were honoured to be presented with a plaque to thank us for 20 years of membership of the Chamber. The award was presented to Jonathan Goodman, Development Director of Spain, who has overseen our business here for the last 20 years. During this time we have worked closely with the Chamber on a large number of matters and events. In addition to the more formal associations it is always a pleasure to meet other members at their many social gatherings.
We would like to thank the BCC for their recognition of The Spectrum IFA Group and we look forward to working with them for at least another 20 years!
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When is a guarantee not a guarantee
By Derek Winsland
This article is published on: 28th June 2016
When is a guarantee not a guarantee? Members of the BHS Pension Scheme must be wondering that after news broke that the scheme, into which both they and their employer diligently contributed into, is £571 million in deficit. Questions are being asked as to how it ended up in this situation, given that the Trustees of the scheme were supposed to operate within quite strict guidelines, within a regulatory regime that doesn’t usually miss much. It is at this point that a short history lesson is perhaps needed.
The more mature reader will no doubt remember the Robert Maxwell Affair. The former owner of Mirror Group Newspapers (under rules that were allowed at that time) regularly dipped into the wonderfully overfunded Mirror Pension Scheme to prop up his ailing business, to the tune of around £500 million. When this didn’t work, he (allegedly) took a swallow dive off the back of his boat, leaving others to clear up the mess he’d created.
Much hand-wringing in the corridors of power resulted in more stringent rules being put in place to avoid a repetition and to which pension scheme trustees would henceforth have to abide by. Bear in mind, that the employer was generally the trustee of its own scheme, being told to conform to new rules limiting what they could and couldn’t do was a challenge; in the end the regulator focused on policing the funding position of schemes….no more than 110% overfunded and no less than 90% underfunded. This led to overfunded schemes using imaginative ways to reduce its funding position such as providing contribution holidays to its members or giving discretionary increases to retiring members’ benefits for example. Another bright idea was the introduction of reporting requirements that insisted on pension fund deficits being carried through to the company balance sheet – that’ll stop those pesky company executives from massaging their company’s financial position.
Pension Protection Fund (PPF)
Fast forward a few years to the start of the millennium when three years of turmoil in equity markets had a disastrous impact on those funding positions…whoops! This resulted in the creation of the Pension Protection Fund (PPF), a funding mechanism put in place to safeguard the benefits of pension scheme members in the event of company failure. The government of the day decreed that PPF should be funded by the family of pension schemes themselves…..anyone spot the flaw in this? At some indefinable future date, it will fail because the ratio of fully funded schemes will reduce, whilst the number of failing companies increases. Interestingly, one of my colleagues in Spain has analyzed the funding position of the PPF, the results of which are on the Spectrum IFA Group’s website. To the end of January 2016, there are 5,945 member schemes in the PPF, 4,923 of which are in deficit, and only 1,022 in surplus. The average funding position across all companies is 80% (remember the ‘no less than 90% underfunded’ rule?); the deficit position of the PPF is £304.9 billion.
Perhaps, this is the real reason why Pensions Flexibility was introduced? Encourage pension policyholders including members of final salary pension schemes (also known as Defined Benefit or DB Schemes) “to take control of their own retirements”, or buy a Lamborghini if you prefer! The lure of that invitation has not been lost on the Great British pension public, which has resulted in meaningful conversations being had between them and their IFA’s. In some cases, it really is beneficial to take the transfer value offered and put it into a personal pension arrangement, but I stress this does depend on individual circumstances.
Are you a member of a Defined Benefit Pension Scheme?
If you are a member of a defined benefit pension scheme and would like us to carry out an analysis to determine how valuable it is to you and your circumstances, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings. There is also no charge for the gathering of information from your pension scheme administrator, after which we will put you in a much more-enlightened position as to your benefits.
The Spectrum IFA Group opens an office in Limoux
By Derek Winsland
This article is published on: 27th June 2016
“Out with the old and in with the new”
No this is not a reference to Rob Hesketh departing the scene (which he isn’t, he remains a very important part of the Spectrum operation here in Limoux). Rather it relates to my decision, after 20 plus years at the coal-face of UK Financial Services, to sell up and move lock, stock and barrel to this beautiful part of France.
So far the move has gone well, apart from one or two hiccups that should be expected. But I’ve been grateful for the help and support I have been given by colleagues and the wider ex-pat community who have been generous in sharing their experiences of moving here and the pitfalls to avoid. It has also enabled my fiancée and I to bring forward our wedding plans and so we return to the UK to the beautiful City of Chester to tie the knot at the end of this month.
As both Sue and I have been married before, the more acerbic reader may observe that this is another case of “out with the old, in with the new”!
“Out with the old, in with the new” also refers to Spectrum’s decision to open an office here in Limoux. This is the first office Spectrum has formally established in rural France (up until now Rob and Daphne and all the other Spectrum IFA’s in the area have worked from their homes or other informal locations), so for the company to select this area for its first venture of this kind is testimony to the brilliant work both Rob and Daphne have done over many years. Both Rob and Daphne have now decided they’d like to ease down a bit, and this explains my introduction to this area.
It’s worth noting that The Spectrum IFA Group already have offices in major cities like Paris, Barcelona, Amsterdam, Luxembourg and Rome and now Limoux joins that illustrious list!
We’ve taken on an office manager, Jaime Donkin, who will be responsible for the day-to-day operation of the office – the office is open Tuesday-Thursday 09.30-12.00 and 14.00-16.00 and Friday 09.30-16.00.
Limoux Friday Clinic
Another change is the introduction of a new service we are offering of a Friday Clinic. As you will no doubt know, Friday is market day here in Limoux, so I will be here to answer any questions you may have; you don’t need to make an appointment, just drop-in on any Friday morning and I’ll endeavour to assist. If you’re making a special journey, you can also ring in to the office and we’ll set aside a half hour appointment if you prefer, the office number is 04 68 31 14 10.
The choice of office location couldn’t be more appropriate either, situated as it is between the bank and the tax office! We like to think we offer an essential buffer between your money flowing out of your bank account and in to the taxman’s – to find out how, pay us a visit on any Friday morning or alternatively ring for an appointment, which could either be in our office or at your home.
BREXIT & The Spectrum IFA Group
By Spectrum IFA
This article is published on: 24th June 2016
All of the Spectrum team and the majority of our clients are extremely disappointed with the result of yesterday’s UK BREXIT referendum.
What will the leave vote mean to our clients and potential clients?
In terms of dealing with Spectrum, we are an EU licensed IFA firm, not a UK or Gibraltarian firm trading under EU passporting arrangements.
Most of the products we recommend are individually EU compliant based in Dublin, so no change there.
Existing EU resident expatriates and new UK expatriates will now need our advice and services more than ever before. Once the UK actually leaves the EU there will be issues to solve in relation to Healthcare and Pensions, for example.
Many of our clients have opted to transfer their UK pensions to an EU jurisdiction (QROPS), the main reason being that they are fed up with frequent changes to UK rules. We now expect even more UK pension rule changes. We expect more people will be looking to transfer their pensions to achieve a degree of certainty in the future now that the UK are leaving the EU.
So for Spectrum, our clients and potential clients, we see it as “Business as usual”.
Our belief is “With Care, You Prosper” and we remain available to help where we can.
Michael Lodhi CEO
The Spectrum IFA Group
Planning for Certainty in an Uncertain World
By Spectrum IFA
This article is published on: 17th June 2016
At the time of writing this article, the UK Referendum on membership of the EU is only a week away. As the polls swing from one side to the other, uncertainty increases, in part driven by sensationalist media reporting. It seems that even football hooliganism might have the potential to affect the outcome of the Referendum, if England is disqualified from Euro 2016.
If the vote is to remain, in theory, life should go on as we know it. In practice, the schism created within the government over the EU question could make things unworkable. The next UK general election is scheduled for May 2020, but could we see this brought forward?
If the vote is to leave, no-one knows at this stage what this will mean in practice, as it will depend on any exit terms negotiated. If nothing is agreed within two years, then the UK will just exit the EU without any special terms at all, unless all the remaining countries agree to extend the deadline. However, will any of the Member States be favourable to granting special ‘club membership terms’ to any country that leaves the club?
For those of us living outside of the UK, how do we plan for our financial future, amidst all this uncertainty? Well the saying, “when in Rome, do as the Romans do”, comes to mind here. As difficult that thought may seem to be now, financial planning is for the long-term and part of that planning is managing through ‘events’ that occur – including the big political and economic ones.
So whether the UK is in or out of the EU, what really should be considered in planning for a secure financial future is what works best for us according to our country of residence. We already have many clients who are non-EU nationals living happily in France (and in the other countries in which we are based). Whilst there may be some different home tax issues to consider, the financial planning that we carry out for these clients is no different to what we do for our British clients.
Last month, I wrote about tax-efficient savings and investments in France and if you did not see this, the article can be found at https://spectrum-ifa.com/tax-efficient-savings-investments-france/. All the savings and investment products mentioned are widely used by people of all nationalities – being an EU national or not, makes no difference.
A very important part of planning for a secure financial future is to have an appropriate investment strategy for financial assets. Your attitude to investment risk and objectives for your capital are major factors to be taken into account when recommendations for any investments are made. For expatriates, it is also important to consider currency and mobility needs. Investment recommendations should only be made following an in-depth review of your personal situation. Everyone’s situation is different and there is no ‘one plan fits all’ facility.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter here.
Known Unknowns
By Derek Winsland
This article is published on: 16th June 2016
Individual investors may face many “known unknowns”—that is to say, things that they know they don’t know. The UK’s referendum on EU membership is one of them, confronting people with a large degree of uncertainty. But as we’re witnessing, it’s not just the investor that’s afflicted by this Known Unknown condition – the markets are really uncomfortable as evidenced by the fall in the value of the pound.
We have though been here before; perhaps not having to make decisions that could affect our financial stability for years to come, but as the chart below shows, major global events that have impacted on our lives to a greater or lesser effect. Through all of them, the markets have shown a remarkable resilience over the longer term and that is one of the most important lessons the individual investor can learn.
You see, it’s not necessary to “make the right call” on the referendum or its consequences to be a successful investor. Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.
In arguing for the status quo, the “remain” campaign is able to point out familiar characteristics of membership.
The “out” campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known. It is impossible for any individual to predict the implications of these unknowns with certainty.
But this is no cause for concern. While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome. We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
And while these events have caused uncertainty, volatility and short-term losses and gains, none of them has altered the expectation that stocks provide a good long-term return in real terms.
We have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.
These events are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.
Research has demonstrated time and again that the best returns are achieved through ‘Time in the Market’ and not by trying to ‘Time the Market’; in other words, stay invested rather than guess the best time to invest and disinvest.
If you would like more information on our investment philosophy, please ring for an appointment or take advantage of our Friday Morning Drop-in Clinic here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Le Tour de Finance spring events
By Spectrum IFA
This article is published on: 16th June 2016
The final three Le Tour de Finance events of the spring season finished in Pezenas, Nimes and Frejus. The venues for these past three events were spectacular bringing even more enjoyment to the days events for the attendees. The weather was kind and the events were a huge success.
So far, Le Tour de Finance in 2016 is proving to be the most popular series of events ever. The seminars offer English speaking expats a chance to meet various experts from fields including; specialist expat independent financial advice, wealth management, currency exchange, QROPS/pensions and expat tax advice. The experts represent a range of international institutions giving attendees unprecedented access to ask those nagging questions about living as an expat in France.
Representatives from a wide range of international companies such as Tilney BestInvest, SEB Life, Standard Bank, Rathbone Brothers plc, Prudential International, Momentum Pensions and AXA attend the events for a small presentation but more importantly, the events allow attendees to ask direct questions to these experts. This unprecedented access to the experts is what really sets Le Tour de Finance events apart.
The events will re-commence after the summer break in September and October. Keep an eye open for events in France, Spain and Italy or contact us here to receive updated information on events in your region.
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be.
If you have any specific question please contact us here – Le Tour de Finance Questions
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