Dealing with volatility
By Chris Webb
This article is published on: 11th March 2016
Market volatility has become a common discussion with all of my clients. Whether they are seasoned investors or new to the investment game, volatility is an area that is now at the forefront of their minds when looking to invest their hard earned savings. To a large percentage of people their only understanding or awareness of a volatile market comes through the media, who we all know love to sensationalise every story at every opportunity.
What is a volatile market? By definition a volatile market is where unpredictable and vigorous changes occur in the price within the stock markets. It is necessary for some movement within the market in order to sell commodities, however a volatile market can represent the most risk to investors.
If you’re not in the “daily trading” game, and are investing for the medium to long term then it’s not always wise to listen to all the hype and speculation in the media. It may be a wiser decision to focus on the fundamentals behind why you invested in the first place, and stick to those fundamentals. Two key areas to focus on are your personal emotions and your attitude to risk.
In volatile times emotions play a significant role in investing decisions. Many investors feel the short term variances in the returns of their investments much more than the average return over the medium term of their investments, even though the decision to invest was a medium term one. Rationally, investors know that markets cannot keep going up indefinitely. Irrationally, we are surprised when markets decline.
It is a challenge to look beyond the short-term variances and focus on the long-term averages. The greatest challenge may be in deciding to stay invested during a volatile market. History has shown us that it is important to stay invested in good and bad market environments. During periods of high consumer confidence stock prices peak and during periods of low consumer confidence stock prices can come under pressure. Historically, returns trended in the opposite direction of past consumer confidence data. When confidence is low it has been the time to buy or hold. Of course, no one can predict the bottom or guarantee future returns. But as history has shown, the best decision may be to stay invested even during volatile markets.
During these emotional and challenging times it is easy to be fearful and/or negative so let’s turn to the wise advice of one of the world’s best investors, the late Sir John Templeton:
“Don’t be fearful or negative too often. For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers—and many individual investors too—made money in stocks, especially those of smaller companies…There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up…and up…and up”
So do you invest or watch from the sidelines? When markets become volatile, a lot of people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. But just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of your returns.
Whilst dealing with the emotional side of investing it would be worth evaluating your risk tolerance. Many clients attitude to risk will change over time, this may be due to age, personal circumstances or just added awareness to how the markets move. Each and every one of us has their own individual risk tolerance that should not be ignored when considering making any type of investment. Your investments should always be aligned to your level of risk even if that means making drastic / strategic changes to your portfolio as times change.
Determining one’s risk tolerance involves several different things, and there are different ways to look at how you should look at the risk you need to take. First, you need to know how much money you have to invest, what your investment and financial goals are and what time horizon is involved. Then you need to consider the actual risk you are prepared to take. One simple question can help determine your attitude to risk, however a more detailed discussion should take place to really ascertain your tolerance level and to compile a suitable portfolio.
The one question….. If you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, what would you do, sell out or let your money ride?
If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are, it is based on how you feel about your money! Your risk tolerance should always be based on what your financial goals are and how you feel about the possibility of losing your money. It’s all tied in together, it’s emotional.
So a few pointers to help you through the volatility.
Review your portfolio. Is it as diversified as you think it is? Is it still a suitable match with your goals and risk tolerance?
Tune out the noise and gain a longer term perspective. Numerous media sources are dedicated to reporting investment news 24 hours a day, seven days a week. Do you really need to be glued to it? While the media provide a valuable service, they typically offer a very short-term outlook. To put your own investment plan in a longer term perspective, and bolster your confidence, you may want to look at how different types of portfolios have performed over time. Interestingly, while stocks may be more volatile, they’ve still outperformed income oriented investments (such as bonds) over longer time periods.
Believe Your Beliefs and Doubt Your Doubts. There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio but sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long term goals.
Prior to working with any clients I insist on completing a personal detailed risk tolerance questionnaire. This will tell us exactly what your attitude to risk is and a suitable portfolio can be devised to suit you individually. If you are interested in investing or saving for the future, get in touch to discuss the opportunities available and just as importantly the risks associated. If you already have an investment portfolio and feel that it was never risk rated against your own risk tolerance then let me know, I am happy to discuss further and go through the questionnaire to ensure that what you have already done is suitable for your circumstances.
Company Pension/Final Salary funding update 31st January 2016
By Chris Burke
This article is published on: 8th March 2016
With most UK Final Salary schemes (also known as Defined Benefit) now closing their doors to new members, the schemes are concentrating on trying to manage to make sure there is enough money for those people still in them for retirement. This ‘closing of the doors’ also means there is no ‘New Money’ entering the schemes, which takes away the option of new contributions paying the pensions of those currently retired, as they used to. One of the biggest reasons for this, is that many years ago these often called ’Gold Plated’ schemes were made up on the following mathematics:
People retired at 55, then died at 67.
Thus, approximately 12 years of payments should they live to this point. However, now the mathematics are more likely to be the following:
People retire at 60, and the average life expectancy is 84 in Europe.
You don’t need to be a mathematician to work out why the schemes are faltering, and worryingly in many cases, heavily reliant on their companies contributing millions of pounds to keep them going.
The Pension Protection Fund (PPF) takes these schemes under its wing should the company scheme get to a point that it cannot realistically recover from poor funding. However, it is gaining more and more ‘members’ and will only cover pension income up to a point. Therefore, many client’s believe it is better not to be in the PPF if possible, and have your pension under your own control and in essence not at the mercy of a government body to bail you out. People thought that the Kodak pension scheme would always be ok; unfortunately it was not and left a lot of people with no or little pension benefits.
Below is a transcript of the update from the Pension Protection Funds own website updating what has happened and why. If you have any questions regarding this or what your options are, don’t hesitate to contact Christopher, the article writer (contact information is at the bottom of this article).
Update from the Pension Protection Fund (PPF) of its members
The aggregate deficit of the 5,945 schemes in the UK Pension Protection Fund (PPF) Index is estimated to have increased over the month to £304.9 billion at the end of January 2016, from a deficit of £222.4 billion at the end of December 2015. The funding ratio worsened from 84.9 per cent to 80.5 per cent. Total assets were £1,258.7 billion and total liabilities were £1,563.6 billion. There were 4,923 schemes in deficit and 1,022 schemes in surplus.
The aggregate deficit of the schemes in the PPF 7800 Index is estimated to have increased to £304.9 billion at the end of January 2016, from £222.4 billion at the end of December 2015. The position has improved from the previous year, when a deficit of £367.5 billion was recorded at the end of January 2015. The funding ratio of schemes decreased over this month from 84.9 per cent to 80.5 per cent at the end of January 2016. The funding ratio is higher than the 77.6 per cent recorded in January 2015.
Within the index, total scheme assets amounted to £1,258.7 billion at the end of January 2016. Total scheme assets increased by 0.9 per cent over the month and decreased by 1.2 per cent over the year. Total scheme liabilities were £1,563.6 billion at the end of January 2016, an increase of 6.4 per cent over the month and decreased by 4.7 per cent over the year.
The aggregate deficit of all schemes in deficit at the end of January 2016 is estimated to have increased to £338.4 billion from £265.8 billion at the end of December 2015. At the end of January 2015, the equivalent figure was £392.6 billion. At the end of January 2016, the total surplus of schemes in surplus decreased to £33.6 billion from £43.4 billion at the end of December 2015. At the end of January 2015, the total surplus of all schemes in surplus stood at £25.2 billion.
The number of schemes in deficit at the end of January 2015 increased to 4,923, representing 82.8 per cent of the total 5,945 defined benefit schemes. There were 4,679 schemes in deficit at the end of December 2015 (78.7 per cent) and 5,175 schemes in deficit at the end of January 2015 (85.4 per cent of the 2014 population of schemes). The number of schemes in surplus fell to 1,022 at the end of January 2016 (17.2 per cent of schemes) from 1,266 at the end of December 2015 (21.3 per cent). There were 882 schemes in surplus at the end of January 2015 (14.6 per cent of the 2014 population of schemes).
Understanding the impact of market movements Equity markets and gilt yields are the main drivers of funding levels. Scheme liabilities are sensitive to the yields available on a range of conventional and indexlinked gilts. Liabilities are also time-sensitive in that, even if gilt yields were unchanged, scheme liabilities would increase as the point of payment approaches. The value of scheme assets is affected by the change in prices of all the major asset classes, not just equity markets. However, due to their weight in asset allocation and volatility, equities and bonds are the biggest drivers behind changes in scheme assets; bonds have a higher weight in asset allocation, but equities tend to be more volatile. Over the month of January 2016, liabilities increased by 6.4 per cent. Conventional and index-linked 15-year gilt yields fell by 34 basis points and 20 basis points respectively. Assets rose by 0.9 per cent in January 2016. The FTSE All-Share Index fell by 3.1 per cent over the month. Over the year to January 2016, 15-year gilt yields were up by 33 basis points and the FTSE All-Share Index was down by 7.9 per cent.
Retiring in Spain with a UK State Pension – How does it work?
By Chris Burke
This article is published on: 7th March 2016
Many people understand that the UK is in the EU (for now at least) and therefore when you retire, it should be simple to understand how you claim your State and personal pensions. The main questions people have are what pension will you receive, how will you receive this, where should you be paying your taxes and how when retired, can you receive your pension in Euros and what could happen if you don’t have this organised correctly?
Over the last few years this has changed and, as of now, works in the following way.
Never worked in Spain but retiring here
In this scenario, having never paid Spanish taxes you will receive the UK State pension by contacting the HMRC on the following links:
How to check what State pension you have
www.gov.uk/check-state-pension
How the State Pension works
How the new state pension will work
How to claim your state pension online
www.gov.uk/claim-state-pension-online
Early retirement and State Pension
www.gov.uk/early-retirement-pension
You will be able to find out exactly what you will be entitled to and how it works. UK State pensions are always paid gross and never taxed, it is your duty to report this in your annual earnings whichever country you are resident in and along with your income, pay the relevant tax. State pension does come under the tax bracket as income tax.
www.gov.uk/tax-uk-income-live-abroad
You can choose to have your UK State pension paid into a UK bank account in sterling, or into a Spanish account in Euros at the rate of exchange that day (i.e. almost no costs for doing this).
If you have a private or company pension scheme in the UK, you should register on the following link and make sure this is also paid gross to you:
Then, you should be declaring this income in your annual tax return here in Spain (Declaracion De La Renta) and pay the relevant taxes, it’s advisable to find a good gestor to guide you.
A word of note here, unlike in the UK where your accountant/tax advisor is accountable for the advice they give you, here in Spain YOU are liable, even if the advice you are given is wrong. This stems back from Spanish culture, which you may remember when you learnt Spanish that they say in essence ‘The pen fell from my hand’ whereas in English we would say “Oops, I dropped the pen”.
Worked in Spain & the UK, Retiring here
In this scenario, as the UK is part of the EU, you should approach the local tax office in Spain and inform them of your situation. They in turn, would then contact the other countries you have worked in and where you paid tax and National Insurance contributions. This would then be paid to you by them directly as they collect from the relevant countries.
Different countries have different ages that they start paying your State pension from, so you need to bear that in mind.
Failure to correctly declare your pension income
What if you are or planning to be a resident here in Spain, but collect your UK state and private pension directly from the UK and do not declare here and in essence pay no taxes here? Surely, as the UK and Spain have a Double Tax Treaty (DDT, which means that you will not pay tax twice on any income you receive) as long as you are paying tax somewhere it’s not a problem? Well, consider that you are living in Spain as a resident, using their services, taking advantage of the healthcare and all the other things that make living here so enjoyable. Yet, you are paying UK taxes even though you are not living there. As you can see this doesn’t seem right! And it isn’t! Therefore, if you are found declaring your income incorrectly, it could result in you being fined, maybe even substantially. What is more, there is usually a minimal difference in the tax you might pay, whether it be in the UK or here, depending on your situation and income.
Also, give the fact that WILLS have now changed as of last August, meaning in essence you can choose which jurisdiction (country, laws) your estate would apply to, there seems little reason to risk this and not declare and pay your taxes as they should be. It would certainly stop a nasty knock at the door at some point down the road, especially as of next year when Common Reporting Standards come into rule (CRS – where countries around the world will be sharing information on the finances of their passport holders) meaning it’s even more likely you could be ‘found out’. Please note, this does not change where you are taxed for succession issues.
Therefore, we recommend making sure you are doing things properly, whether this involves you declaring this yourself or through a gestor, as well as making sure your WILL is up to date.
Pensions Back on the Government’s Agenda Again!
By Spectrum IFA
This article is published on: 4th March 2016
The date that is etched in everyone’s mind at the moment is 23rd June, when the referendum on the UK’s membership of the EU takes place.
However, if you still have pension benefits in the UK to claim, there is another date that you should be focused on – 16th March – the date of the UK Budget.
Last summer, the government launched a consultation on pension tax relief and this is what the Chancellor said ……….
“With increased longevity and the changing nature of pension provision, the government needs to make sure that the system incentivises more people to take responsibility for their pension saving so that they are able to meet their aspirations in retirement.”
Incentivising people to save for retirement? Well that’s not new. The current system of the tax-free Pension Commencement Lump Sum (PCLS) and tax-relief on pension contributions is already a good incentive, even though the latter has been capped and steadily reduced since 2006. So what more does the government think should be done?
The chancellor goes on to say ……..
“That is why the government is today publishing a consultation on pensions tax relief. If people are to take responsibility for their retirement, it is important that the support on offer from the government is simple and transparent, and that complexity does not undermine the incentive for individuals to save.”
Now “simple” and “transparent” are not words that appear in my dictionary on the UK pension system. On the other hand, “complexity” does, particularly as concerns the new State pension system coming into effect in April, something that I will cover in another article.
The most radical idea that the chancellor floated was the introduction of the Pension ISA, where all pension contributions would be paid on post-taxed income, but thereafter, no tax would be payable – either on the investments in the pension fund or on the pensions in payment. Definitely attractive to a cash-strapped chancellor who wants to at least ‘balance the books’ during the remainder of this government’s term of office, but hugely short-sighted for future generations, when demographic pressure on public spending and the need for tax revenues is likely to be more severe.
The system would also be hugely complex as, in effect, two separate pension pots would have to be kept – the old system ‘post-tax pot’ and the new system ‘pre-tax pot’. Maybe the government would introduce some transitional arrangements to convert ‘post-tax pots’ into ‘pre-tax pots’ and if so, for sure there will be some losers. Costs for administering the new arrangements would increase and for the dwindling number of remaining defined benefit pension schemes, this could lead to these ending up in the ‘pensions graveyard’ – who will pay the levies to the Pension Protection Fund then?
An alternative idea proposed is for pension contributions to be paid out of post-taxed income and for a flat-rate of tax relief to be paid by the government into the pension pot or into the defined benefit scheme. If the tax-relief is limited to the basic rate of 25%, higher tax rate payers will lose out – some incentive!
The government’s current thinking on this to incentivise people is – ‘if you pay into your pension, the government will top it up’. This is spin, the tax-relief at source already exists for occupational pension schemes and a delay in getting the government’s so-called ‘top up’ into the pension scheme would be detrimental for the pension member.
The effect on the employer of defined benefit pension schemes should also not be underestimated, where the employer is legally obliged to ensure that the pension assets can meet the liabilities. Any delay on getting the tax-relief due into the defined benefit scheme is in effect, an interest-free loan to the government. My pensions career started more than 40 years ago and I remember well how long we had to wait for National Insurance rebates to be paid by the government into occupational pension schemes. Another nail in the coffin, on route to the pensions graveyard?
I save the ‘best’ to last – the abolition of the tax-free PCLS. Of course, I am being cynical because there is nothing good that could come out of taxing the beloved PCLS and definitely not the best way of incentivising people to save more for retirement. Receiving a tax-free cash sum has been at the heart of the UK pension system for decades. To take this away now, when people have saved for years and planned for retirement on the basis that they would receive this tax-free PCLS is quite simply wrong.
Of course, the government could just tinker with the existing system more by reducing the maximum amount that people can pay into tax-relieved pension funds and perhaps also by no longer allowing employers tax-relief on National Insurance contributions. The latter would hurt employers, particularly with the abolition of contracting-out of the State Second Pension from April, which anyway results in increased National Insurance Contributions (another nail in the coffin?).
The first organised UK pension scheme can be traced back to the 1670s, when the Royal Navy put in place provision for its officers. Other public sector pensions followed over the centuries, but it was in the 1950s and 1960s that corporate pensions became a prominent part of the remuneration package. In the good old days of easily understandable pension schemes, we were encouraged to pay Additional Voluntary Contributions – after all you got tax-relief and so were incentivised to save more for retirement. When I started work, the maximum amount that we could contribute was simply limited to 15% of earnings – regardless of whether you were a basic rate or higher rate taxpayer.
Do you trust future politicians not to change the UK pension rules again?
If you would like to have a confidential discussion about your pension or any other aspect of your personal financial situation, you can either contact us by telephone on 04 68 31 14 10 or by e-mail at limoux@spectrum-ifa.com. Alternatively, drop-by our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
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.
UK Pension Tax Changes 6th April 2016 (lifetime allowance)
By Chris Burke
This article is published on: 3rd March 2016
Anyone who has a private or company pension in the UK could be affected by the changes being brought in on the 6th April this year. This may be anyone with private pension(s) whose combined value is around £1,000,000, or a company pension scheme which would give an income in retirement of approximately £40,000 per annum.
In essence, the changes affect the tax you would pay on this money. Up until now, any pensions combined under £1,250,000 in real value would not be subject to any further taxes than those of normal income or inheritance tax. However, any pension with a value higher than this would be subject to additional taxes. This allowance is called a ‘Lifetime Allowance’ (LTA). The tax on pensions over this value can be up to 55%.
As from April this year, this Lifetime Allowance Value is being reduced to £1,000,000. Therefore, any pensions combined worth more than this would now be liable to these potentially additional taxes.
If you have a Corporate, Company, Final Salary or Defined Benefits Scheme this will also be tested against the new Lifetime Allowance. These Schemes are based on your final salary when leaving your employer as opposed to contributions and investment growth, and the amount usually has to be multiplied by a factor of 20 in order to calculate the capital equivalent value. These Schemes also usually pay a tax-free lump sum, and this also has to be included in the LTA calculation. Therefore, depending on the pension(s) this new limit may affect you.
What are the key factors involved in the Lifetime Allowance testing?
Retirement after age 55: Once a lump sum/income is taken from a Pension, these are tested against the LTA.
At age 75: Any Pensions that have not been accessed will be tested against the LTA at this time. Pensions in drawdown will also be tested again at this time.
Death pre-age 75: Pensions will be tested against the LTA to ensure that the limit has not been exceeded.
Transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme – when you transfer your pension outside of the UK): If a UK Pension Scheme’s funds are transferred into a QROPS, the value of the transferred funds are tested against the LTA.
Of course, the main point here for many people is death before age 75. If this happens, as is stands your pension will be subject to this potential tax from £1,000,000 and above.
What are the tax charges?
If the Lifetime Allowance is exceeded, then the tax charges will depend on how the excess is paid from the Scheme.
If as a lump sum (normally the case in inheritance): subject to a 55% tax charge.
If as a Pension Income: subject to a 25% tax charge.
Transfer to a QROPS: subject to a 25% tax charge on the excess above the LTA.
Is there any protection against Lifetime Allowance charges available?
The UK Government has confirmed that from April 2016, the following two protection regimes will be available, allowing individuals a fixed or individual LTA dependent on the value of their Pensions and/or the type of protection:
Fixed protection 2016: This ‘fixes’ the LTA at the current £1.25m. In order for this to apply, no further Pension benefits can be accrued in a Scheme on or after 6 April 2016.
Individual protection 2016: The LTA will be set at the value of the Pension on 6 April 2016, when the new £1m LTA is introduced, so long as it is valued between £1m and £1.25m. This protection does allow further contributions, but any Pension in excess of the protected LTA will be taxed on the usual way when tested.
What about a transfer to a QROPS/Overseas pension scheme?
This currently enables an individual to safeguard their Pension Fund against this tax charge and allows the fund to carry on growing. As detailed above, the fund is tested against the individual’s Lifetime Allowance at the point of transfer, rather than at the point of each pension being tested as per above scenarios, i.e. death before pension accessed etc.
Perhaps the most important information to know regarding this, is that not so long ago the Lifetime Allowance for pensions was £1,800,000 in the UK. It is consistently reducing, which is worrying considering every twenty four years historically inflation doubles, and yet the Pension Lifetime Allowance is dramatically being reduced instead of increased, such as the tax bandings for income tax have been after years of lobbying by the general public. This could lead us to one main conclusion, the UK governments’ need to collect more and more taxes. Therefore, as the years pass by it could be this differential continues to grow and grow, in real terms meaning individuals will pay more and more tax.
The key points to consider with this are:
Having your pension(s) in the UK will enable them to be liable to the UK rules and the government’s ability to change them, including the uncertainty of what these changes may be in the future.
The Lifetime Allowance is consistently decreasing, meaning taxes are consistently increasing.
Understanding of these changes and how it might affect you could save you or your loved ones considerable money in potential taxes.
If you have no plans to retire in the UK and have pensions there, it could be worth having these evaluated to see whether it would be beneficial for you to transfer them securely outside of the UK.
Talking your personal circumstances through will put your mind at rest, or enlighten you on what your options are and how you can best plan for this eventuality.
If you would like to ask any questions regarding this subject, or speak to Christopher, a UK pensions expert who wrote this article, feel free to contact him on the details below.
Spectrum sponsors the NADFAS event in Costa del Sol
By Charles Hutchinson
This article is published on: 24th February 2016
The Spectrum IFA Group co-sponsored an excellent NADFAS (National Association of Decorative & Fine Arts Societies) lecture on 17th February at the San Roque Golf & Country Club on the Costa del Sol. The Spectrum IFA Group was represented by our local adviser, Charles Hutchinson, assisted by his wife Rhona who attended along with our co-sponsors Ignacio Ortega & Tricia Anderson from Currencies Direct.
The National Association of Decorative & Fine Arts Societies is a leading arts charity which opens up the world of the arts through a network of local societies and national events.
With inspiring monthly lectures given by some of the country’s top experts, together with days of special interest, educational visits and cultural holidays, NADFAS is a great way to learn, have fun and make new and lasting friendships.
At this particular event, over 100 attendees were entertained by a fascinating talk on Indian Textiles Art & Design by Jasleen Kandhari, Head of Department, Oxford University.
The talk was followed by a drinks reception which included a free raffle for prizes including CH produced Champagne and a coffee table glossy book on Indian Fabric Design. Currencies Direct also supplied a presentation box of Cognac and Chocolates and desk diaries.
All in all, a good turnout and a very successful event at a wonderful venue. The Spectrum IFA Group were very proud to be involved with such a fantastic organisation and we shall also be sponsoring next month’s event on the subject of Fabergé’s Imperial Easter Eggs from the Russian court.
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Le Tour de Finance – Spring Seminars
By Spectrum IFA
This article is published on: 23rd February 2016
The spring run of Le Tour de Finance seminars in France is kicking off this week on the 8th March in Limoges and then moves on to Poitiers on the 9th March and Mouzil on the 10th March.
Le Tour de Finance in 2015 proved to be the most popular series of events ever and we celebrated the 100th event in November. The seminars offer English speaking expats a chance to meet various experts from fields including; specialist expat independent financial advice, mutli-asset 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.
The events commence at 10am with a welcome coffee followed by a series of short and informative presentations. The seminars are wrapped up with a free buffet lunch and the chance to personally meet these experts and mingle with other like minded expats.
The next events are:
| 8th March 2016 | Haute-Vienn Limoges | Register Now | |
| 9th March 2016 | Poitou-Charentes Poitiers | Register Now | |
| 10th March 2016 | Pays de la Loire Mouzeil | Register Now |
If you would like further information or would like to book a place, please contact us
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients. It would be helpful for us to know what your particular areas of interest might be.
For further details and to book your place at a future event please register here or complete the form below.
Planning for the yachting season ahead
By Peter Brooke
This article is published on: 22nd February 2016
You spend much of your professional lives working hard for other people; this season I want to challenge you to do one thing for you and your future every month.
MARCH (i.e. now):
Consolidate your bank accounts – you don’t need them all.Have an account in the currency in which you are paid and another in any other currency you regularly use. You don’t, need lots of accounts, but make sure your total balance is below the compensation limits for the jurisdiction in which you hold the account .
April:
Don’t spend money just moving it around, open a currency broker account. If you need to move money from one currency to another, don’t use your bank, your currency broker can save you a small fortune on exchange rates and fees.
MAY:
Invest in yourself! What are you going to do at the end of the season? Consider now what your next set of exams will be and when you can do them. Put money aside for fees and living costs. Check your visas and passports if you are crossing to the U.S. later in the year. And start a diary (see November…).
AUGUST:
This is the really busy time; stop and consider your longer term future. How long do you want to stay in yachting? What do you want to do after yachting?What do you want to get from yachting (personally and financially)?
SEPTEMBER:
The season is calming down – are you really covered? Time to check exactly what health insurance you have on board and if there is any accidental injury or even death in service protection for you and your beneficiaries while you work. When you know, tell someone at home so they can claim on your behalf if necessary.
OCTOBER:
Cash is no longer king. At the end of your season you may have a pot of cash that you can’t get into your bank (due to strict money laundering rules). Negotiate to have tips paid directly with your salary into your bank account, keeping only the petty cash required. Many Captains will do this.
NOVEMBER:
Tax residency is a matter of fact. Get organised and keep a diary of your travels. Yacht crew are “approached” by various tax authorities that believe you might be a resident. It’s not down to them to prove that you are a resident in their country, it’s down to you to prove you’re not. Understand the residency laws of the countries where you are most likely to become a resident, then keep a diary and flight ticket stubs, to support your case.
DECEMBER:
If you’ll be in the yachting industry for more than two or three years, seriously consider saving for your future, Your friends on land are paying tax and social security, which will give them something at retirement – are you? It’s up to all crew to put something aside (I suggest at least 25 percent of salary) while they’re in the industry to try and secure their financial wellbeing. The million dollar rule – to retire on an income of $/€3,OOO per month in 15 years, you will need approximately $/€1.1million in assets.
Personal Financial Planning in France – if I knew then what I know now…
By Jonathan Cooper
This article is published on: 9th February 2016
A British National, I came to France in 1996 for what was meant to be a 3-year local contract. But here I am, still living in France 20 years later. Sound familiar?
This year, at the age of 57, I stopped full-time employment, though I expect to stay in France for some years to come. Here are a just few of the useful things I’ve learned over the years, as an expat in France, focusing on tips for those of you who are still relatively new to France.
Tax efficient investment vehicles
The ISA doesn’t exist in France, but the Plan d’Epargne en Actions (PEA) and the Assurance Vie (AV) do. One can invest 150k euros in a PEA, and after 5 years the gains are free from Capital Gains Tax (CGT). There is no limit to the number or amount invested for AV’s, and after 8 years, any gains on withdrawal attract only 7.5% tax (over 9200 euros/yr). Both PEA’s and AV’s attract Social Charges on investment gains. With present interest rates low, an AV older than eight years is a much better option than a savings account (Compte Epargne). Your employer might also offer you a Plan d’Epargne d’Enterprise (PEE) where investment gains are free from CGT after 5 years.
My advice to anyone becoming tax resident in France is to open a PEA and an AV as soon as you arrive, with just a small initial investment, just to get the clock ticking. You can always close them if your short term contract turns out to be just that!
Pensions, QROPS & PERPs
Years worked in the UK can be transferred to the French system, and additional years purchased at little cost, which can greatly increase the value of your French Pension.
With the 15-year Gilt Rate presently so low, UK pension pot valuations are very high. If you are thinking of staying overseas, it is a good time to consider the Pro’s and Con’s of transferring your pot to a Qualifying Recognised Overseas Pension Scheme (QROPS).
Each year you can invest up to 10% of your salary free of income tax (within the maximum of 8 times the Social Security ceiling) in a Plan d’Epargne de Retraite (PERP), and you can accumulate up to 3 years if you do not use this 10% annual allowance. If you have been made redundant, at the end of the 3-year period of unemployment benefit, you can withdraw all the funds from a PERP free of CGT, so avoiding taking an annuity. Investments in a PERP are not subject to Wealth Tax (ISF).
Getting good, in-depth financial advice
I have always worked with one of the big French Banks and whilst they offer a range of products, their understanding of the needs of Anglo-Saxons is not always high. They recommend mainly in-house products and could be a lot more pro-active.
My employers were kind enough to offer me big consultancy companies to help fill out my annual French tax forms. The introductory meetings with senior directors always went well, but it was clear the forms were filled out by very junior staff, and their aim was to fulfil a service to the employer as much as to me – they are not at all there to offer advice and optimise tax.
Whilst it’s taken me a while to realise, it’s best to seek the assistance of specialist independent financial advisers, people who really understand both the UK and French financial space. I like to have more than one, in addition to the bank, to ensure several points of view/proposals on which to base decisions.
From experience, I can certainly recommend Jon Cooper (The Spectrum IFA Group) and Thierry Mandengue (VIP Partner) – they have undoubtedly saved me tens of thousands of euros.
In my next article, I will share my knowledge of Stock Options, PEE’s and Inheritance planning. I’d be happy to discuss expat finance further if anyone is interested (mspowell58@gmail.com).
*This article has been written by Dr. Martin Powell, a retired, British, Senior Corporate Executive living in France and a client of Jonathan Cooper