Irish Chamber Examines Luxembourg Pension Scheme
By Michael Doyle
This article is published on: 24th October 2013
24.10.13
The pension system in Luxembourg is currently one of the best, however, the Irish Luxembourg Chamber of Commerce (ILCC) saw the importance of clearing up misconceptions with the organisation of an information evening that took place on Wednesday 23 October at the Banque de Luxembourgin Luxembourg city.
Around 50 people attend the event which was introduced by Ailbhe Jennings of the ILCC.
The two speakers at the event were Marco Moes of La Baloise as well as Michael Doyle, a Financial Advisor with The Spectrum IFA Group, and who is also the president of the Scottish Association and the founder of The Business Lunch in Luxembourg.
Mr Doyle addressed the issue of common misconceptions within the state pension scheme. Currently, the Luxembourg Government has a reserve of €11 million which will be exhausted in the next 25-30 years under the current system.
Marco Moes explained that the pension scheme can be broken down into three key pillars; the first is the Legal Retirement State Pension, the second is the Employer’s Pension Scheme and the third is a Private Pension Scheme. Complimentary pension schemes are also an option.
To qualify to receive a state pension in Luxembourg, an individual must have been employed in Luxembourg for a minimum of a year and a minimum of 10 years overall in any EU member state, Canada or Switzerland, countries with which Luxembourg has signed agreements. Currently, employees contribute 8%, employers contribute 8% and the state contributes another 8% towards an individual’s pension. For those who are self-employed, the individual’s contribution rises to 16% and the state contributes 8%. There are also Survivors Pensions and Orphans Pensions which family members may be entitled to after the claimant’s death. It is also important to note that this income is taxable.
Due to an increase in life expectancy and an increase in exported pensions, there have been concerns over the current pension schemes’ durability. This has brought many questions to light, including: will Luxembourg follow in the UK’s footsteps of increasing the retirement age? Will there be a percentage increase in contributions? Will there be a reduction in escalation of payment? Will there be a reduction in pension income?
Currently, salaries increase at a rate of 2-3% per annum whereas pensions lag behind with 1.9% which is not consistent with inflation. To combat these differences, alternative retirement funding options include relying on individual savings capital or creating independent and flexible saving plans which should be portable and, therefore, cross-border friendly, as otherwise these savings might then be liable for high taxes.
With regards to the second pillar, Employer Pension Schemes are on a voluntary basis and are more common in large financial companies, service providers for the financial sector and some industrial companies. Eligibility for these schemes is dependent on employers as is the level of benefits contribution. The categorisation of Employer Pension Schemes falls into the following main categories; a Defined Benefit Plan which is usually 10% of the last earned salary as annuity and 150% of the last earned annual salary, and a Defined Contribution Plan which is usually 5% of each earned salary and an investment in a classic insurance product.
The Spectrum IFA Group & Tour de Finance Seminar Costa del Sol – October 18th 2013
By Charles Hutchinson
This article is published on: 18th October 2013
The Spectrum IFA Group & Currencies Direct held the final Tour de Finance seminar of the season on Friday the 18th October 2013 at the H10 Estepona Palace Hotel on the Costa del Sol, Spain.
The morning comprised various presentations by industry experts and professionals followed by finger food lunch and wines and soft drinks where guests mingled with the presenters and Spectrum staff to discuss questions and personal needs
The following gave presentations:
Jonathan Goodman introduced the seminar with a presentation of the company, who we are, how we do business and where and how we are regulated. Particular emphasis on client concerns and worries and how our top priority is to build a long term relationship with our clients.
Alan Lawrence of Blackrock stressed what worries and concerns investors, how asset returns have altered in both scale and type. Declining bond yields and income equities have shifted the risk profile of both Fixed Interest and Equity assets. The need now to rethink what is low risk and what is high. Where to obtain a reasonable income yield with lowest risk. The dangers of holding cash and how Emerging Markets are an essential part of a portfolio into the future. He ran through various currently recommended BR funds and special emphasis was also made on Gold and its outlook.
Alex Barratt of Currencies Direct showed the guests how using a specialist foreign exchange partner can save you money, both in the exchange rate margins and also in the charges free transfer service they provide, not only in Spain and Europe but all over the world. Of particular interest is that they have made an agreement with a major Spanish bank to provide charges free transfers to and from a client’s account which CD will set up on their behalf.
Andrew Wallace of Prudential International emphasised the strength and history of the company globally, their credit ratings, assets under management and number of clients worldwide. It was unique presentation in the session in that he majored on International Investment Bonds, their value to an investor and the various tax advantages of wrapping one’s investments within them. He then went on to explain the Spanish Compliant Bond and its value to the Spanish resident.
Michael Lodhi, our venerable leader and spiritual guide, repeated what he said at earlier seminars around Europe, viz: Spectrum addresses client concerns for tax efficiency, investment returns, pensions and inheritance tax planning. He highlighted the effects of inflation on essential expenditure and how important it is to regularly review your investments to ensure their constant effectiveness. He went on to explain QROPS (transferring your UK based pension abroad) and the importance of taking unbiased advice to see whether it is suitable for all.
Whether you want to register for our newsletter, attend one of our road shows in 2014 or speak to me directly, please call or email me on the contacts below and I will be glad to help you. We do not charge for reviews, reports or recommendations that we provide.
IMD International Business School in Lausanne – GIVEWATTS
By Spectrum IFA
This article is published on: 14th October 2013
On September 26th IMD International business school in Lausanne hosted a solar energy roundtable evening with audience guests from the regional business community around Geneva/Lausanne and and the NGO community.
Chris Eaborn of Spectrum and his wife Christine attended the highly interesting and informative event.
The evening was introduced by Francisco Szekely,Sandoz Family Foundation Professor of Global Leadership and Sustainability, IMD, with presentations by Jesper Hornberg, co-founder of GIVEWATTS, Dr. Solomzi A. Makohliso, CEO, Ayanda Biosystems S.A., and Irina Lazzerini, Socio-Economic Research Area, Enel Foundation, who work with GIVEWATTS as a partner.
The round-table discussions featured Aileen Ionescu-Somers, Learning Platform Director of IMD’s Global Center for Sustainability Leadership and was expertly moderated by Benoit Leleux, IMD’s Stephan Schmidheiny Professor of Entrepreneurship and Finance, in a lively discussion also featuring open questions from the audience.
The event was rounded off by the fantastic announcement by Alessandra Campanile, Country Manager, GIVEWATTS Switzerland, of its successful application for status as a Swiss NGO and then speakers and guests alike, retired for conversation and refreshments.
GIVEWATTS is the Spectrum IFA Group’s chosen charity in 2013, see https://spectrum-ifa.com/givewatts/ for more information.
ARE YOU PAYING TOO MUCH TAX ON YOUR SAVINGS?
By John Hayward
This article is published on: 12th October 2013
12.10.13
Offshore Spanish-tax-compliant investments
All financial planning advice provided by us is done so using and within insurance contracts that are highly tax efficient in Spain.
For residents of Spain, there is an opportunity to save thousands in tax by structuring investments in the right way. These investments need not, and through us will not, be based in Spain. However, they are recognised by the Spanish as being legitimate for Spanish tax purposes.
Under normal circumstances, if you have a bank deposit, tax will be deducted at source. This is irrespective of whether it is an onshore account, where the local savings tax will be applied, or if it is offshore, and undeclared, where the EU Savings Directive tax kicks in. However, whereas you might be paying 20% tax on the onshore account, you could be having 35% tax deducted from an undeclared offshore account.
Within a Spanish tax compliant investment, you only get taxed when you make a withdrawal. This means that you can defer paying tax for as long as you live. In addition, the rate of tax applied is capital gains tax, currently at a base of 21%.
Also, the amount of the withdrawal which is taxable is very small, especially in the early years, as it is deemed that the majority of the money you are withdrawing is your original capital.
Here is an example:
Mr & Mrs Investor put €100,000 in a Spanish compliant bond and another €100,000 is already on deposit in a bank on the Isle of Man.
One year later, both accounts have made 5%
The tax payable on the bank account is 35%, so the tax payable will be €5,000 x 35% = €1,750
The tax payable on the bond is more complicated to calculate but worth doing so, as you will see.
Same gain of €5,000. The tax is calculated based on how much the gain is relative to its new value.
i.e. (5,000 ÷ 105,000) x 5,000 = €238.09
This is then taxed at 21% which gives a tax bill of €50 compared to €1,750. Quite a saving.
Unlike capital gains tax in the UK, no further tax will be payable if you are a higher rate tax payer. The tax payable is based on the gain, not on your overall income.
These calculations are based on our understanding of Spanish tax law which is subject to alteration.
For more information contact your local adviser or use the contact form below.
Le Tour de Finance Heads to Spain
By Spectrum IFA
This article is published on: 10th October 2013
Following the recent success in Italy and France, Le Tour de Finance is heading to Spain. The Spectrum IFA Group in collaboration with Currencies Direct are proud to announce the Spanish leg of the Tour that begins on Tuesday 15th October in Barcelona before moving on to the Costa Blanca, Almeria and the Costa del Sol.
Le Tour de Finance brings professional experts in expat finance, in Spain, closer to you in an open, friendly and professional manner.
The following professionals will be speaking over the course of the week:
- Currencies Direct – Currency Transfer specialists
- The Spectrum IFA Group – Independent Financial Advisers
- Prudential International – Spanish Compliant Products
- JP Morgan Asset Management – Investment Managers
- Blackrock – Investment Managers
- Plus Information on Tax changes in Spain
The events will commence at 10.30 and finish at 14.00 with welcome coffee and snacks on arrival, followed by brief presentations, a FREE tapas lunch and then time to chat with the experts and meet other like-minded expat individuals.
- Tuesday 15th October – Barcelona, Sitges
- Wednesday 16th October – Costa Blanca, Javea/Denia
- Thursday 17th October – Almeria, Mojacar
- Friday 18th October – Costa del Sol, Estepona
Register for this FREE event by sending an email to seminars@spectrum-ifa.com or calling 936 658 596
Successful LTDF seminar in Valbonne
By Spectrum IFA
This article is published on: 9th October 2013
Nearly half way through Le Tour de Finance the latest stage took us to Valbonne, Alpes Maritime. The seminar was located at the wonderful Château de la Bégude Golf Club. Guests were welcomed on a gloriously sunny morning with dew glistening on the nearby fairways. The seminar teed off at 10.30 after coffee and pastries.
The seminar was sponsored by The Spectrum IFA Group and compared by Peter Brooke. The fact filled seminar covered various subjects pertinent to expats living in France including; French tax laws and the recent changes, QROPS, Assurance Vie, currency exchange, investments and wealth management.
The expert panel of guest speakers included:
- Stephanie Glasper, Tax Lawyer, Hent – French tax update
- Pippa Maile, Currencies Direct – Currency exchange savings and strategies
- Michael Lodhi, Chairman of Spectrum – Inflation & QROPS update.
- Jeremy Ferguson, SEB Life International – Assurance Vie, Efficient Investing in France
- John Hall, Standard Bank International – Structured Deposits.
- Peter Brooke, The Spectrum IFA Group– Selecting funds & building portfolios
- Mark Riggall, JP Morgan Asset Management – the value of investment advice
Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered. After the session finished guests re-located to the terrace over looking the 18th hole and were able to mingle in a pleasant atmosphere with other expat residents whilst enjoying a complimentary buffet lunch.
Le Tour de Finance has 3 events left in France:
- Wednesday 9th October – Var, La Motte
- Thursday 10th October – Vaucluse, Avignon
- Friday 11th October – Aude, Brugairolles
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TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
The Spectrum IFA Group open new office in Mallorca
By Spectrum IFA
This article is published on: 9th October 2013
The Spectrum IFA Group were delighted to announce the opening of their new office in Plaza Bendinat with a well attended and fun cocktail reception on Wednesday 9th October.
The mother and son team of Susan and Tom Worthington are both well respected financial advisers in the local and wider community on the island, with a long track records of giving sound, professional and sensible financial advice to the expat community.
Spanish Inheritance Tax and Habitual Residence
By John Hayward
This article is published on: 3rd October 2013
The Valencian Community, amongst other autonomous regions in Spain, allows huge reductions on inheritance tax. Conversely, Spanish Inheritance Tax (aka Succession Tax – ISD) can be a nightmare if you don´t qualify for these reductions. To qualify, the deceased AND the beneficiary need to be habitually resident in the Valencian Community. Habitually resident is defined as spending the majority of the 5 years prior to death in the Valencian Community.
In the UK, inheritance tax is chargeable on the deceased’s estate when it is worth more than £325,000 (£650,000 if unused allowances are included). In Spain, it is the beneficiary who is taxed. The rate of tax will be determined by the relationship, where the parties are resident, and what existing wealth the beneficiary has.
The ISD is a little more complicated. Up until 7th August 2013, residents of the Valencian Community benefited from a 99% reduction on the tax bill. Therefore, very little was due. Now spouses, descendants and ascendants will have their personal allowances, on receipt of benefits, increased from €40,000 to €100,000. However, the reduction is being lowered to 75%.
Example. Property owned in joint names and deemed to be owned 50/50. Spouse dies leaving their 50% to the surviving spouse. There is no inter-spouse exemption in Spain. Property valued at €400,000. €200,000 (50%) inherited. Under the old system, the tax bill would have been based on €200,000 less €40,000 allowance. This would result in a tax bill of €23,141 which would then be reduced by 99%, leaving a tax bill of €231. Now you need to deduct the allowance of €100,000 which leaves a tax bill of €12,415. Reduce this by 75% and the debt will be €3,103. Under ISD rules, this needs to be paid within 6 months of the death.
As mentioned, these allowances and reductions are only applicable to habitual tax residents and those who are in Group 1 or 2. Those who do not qualify, such as some unmarried couples, or those who are non-resident, would expect an allowance of around €16,000 (€15,956.87 to be precise) with no further reductions. There are a number of other factors but these are the basics.
Tax is payable on gifts as well as inheritances and the rules are very similar to inheritance tax albeit with some restrictions on how much can be gifted to benefit from the reductions.
To see how much tax you could potentially pay, or leave for someone, please go to the Spanish Inheritance Tax Rates.
If you would like to see the Valencia Government’s publication on this, please visit their website.
Retirement Planning – Is it a marathon or a sprint?
By Chris Webb
This article is published on: 1st October 2013
01.10.13
As an independent advisor I assist my clients with all aspects of their financial planning but by far the majority of enquiries I receive are from people in their 40’s and 50’s who are suddenly panicking about their retirement savings.
Quite often, this is the first time they have considered it and as yet have set aside very little for what is going to be the longest holiday of their lives.
At the same time, I have this conversation with much younger generations, people in their 20’s or 30’s, and encourage them to save diligently for retirement now and not later in life. Typically what they want to know is how much they actually need to save so that they can make the decision to retire at a time when they CHOOSE.
The people in their 40’s and 50’sobviously spent the majority of their adult life not saving for retirement. This gave them more free money in their 20’s and 30’s than people who were already saving for retirement, and possibly indulged themselves more.
The knock on effect of this is how much they NEED to save now to afford the lifestyle they desire in retirement. When you look at the numbers it is startling to see the difference between saving early or leaving it until it’s probably too late.
A select few argue that you are better off starting later in life and enjoying your younger years whilst you can, the majority will agree that they should have started earlier and planned consistently without any major impact on their lifestyle.
Detailed below are the numbers, you can decide yourself which way looks more favourable.
For this example let’s start with a young adult – twenty years old. They are looking for an annual income of €50,000 when they choose to retire at the age of 65. To ensure they have this €50,000 ongoing and not depleting all assets you will need an asset basket of around €1,000,000. This is based on having that asset basket invested and generating 5% net return per annum.
So, we already know that you are looking for €1,000,000 set aside for retirement at age 65 and let’s say you have a balanced investment portfolio that will return 7% a year.
• If you start investing at age 20, you’ll need to put aside about €265 a month to reach this goal.
• From age 25, you’ll need to set aside about €380 a month to reach this goal. (you don’t save anything from ages 20 to 25)
• From age 30, you’ll need to set aside about €555 a month to reach this goal. (you don’t save anything from ages 20 to 30)
• From age 35, you’ll need to set aside about €815 a month to reach this goal. (you don’t save anything from ages 20 to 35)
• From age 40, you’ll need to set aside about €1,230 a month to reach this goal. (you don’t save anything from ages 20 to 40)
• From age 45, you’ll need to set aside about €1,925 a month to reach this goal. (you don’t save anything from ages 20 to 45)
• From age 50, you’ll need to set aside about €3,150 a month to reach this goal. (you don’t save anything from ages 20 to 50.
As you go through these numbers you are probably thinking that the amounts to save early on were quite manageable, but when you got to age 50, you’re thinking it’s impossible.
So now you are aware of the numbers you can decide what the easiest option is, planning early or leaving it late.
The main point I want you to consider is that you can ignore the chance to plan early and forego the retirement savings until a later date but catching up later on can be incredibly punishing, even impossible.
So my advice to everyone I meet is to start saving for retirement right now, no matter how old you are. Even if you can’t save very much, start by saving something.
Further examples using the same 7% investment portfolio: • If you just save €100 per month starting at age 20 that would equate to over €380,000 at the age of 65. • If you start saving €300 per month at the age of 30 that would equate to over €540,000 at the age of 65
Something IS always better than nothing. Start with a smaller, more comfortable amount, and increase it as and when you can. Reviewing the amount in line with salary increases is the most effective way to do this.
A short guide to QROPS
By Spectrum IFA
This article is published on: 30th September 2013
Below you can find our short guide on QROPS. Please keep in mind that QROPS require careful analysis and that we always recommend to talk to one of our advisers before you proceed. Also we encourage you ta have a look at our client charter to see how we manage your investments.
