“The goal of retirement … “

By Spectrum IFA
This article is published on: 26th May 2013

26-may

Take control of your UK pension: QROPS

By Craig Welsh
This article is published on: 24th May 2013

24.05.13

Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at QROPS to take control of your UK pension?

Since April 2006, individuals who have left the UK – and left behind private or company pension benefits – are entitled to a QROPS pension transfer. HMRC introduced the ‘Qualifying Recognised Overseas Pension Schemes’ (QROPS) to allow non-UK residents to transfer their frozen pensions outside of the UK.

This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not limited to the British; there are many foreign nationals who have built up a pension pot while working in the UK that can benefit from a QROPS pension transfer.

Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction.

In some circumstances it may not be appropriate to transfer your pension, therefore, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly. Should I consider using QROPS?

If you fit the profile below, then you should consider contacting us for a free analysis of your situation:

You are no longer resident in the UK.
You do not intend to return to the UK.
You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.

So what are the key benefits?

Succession Upon death most people would like to think that as much of their assets as possible would be passed onto their heirs. However, in the UK there can be a tax charge of 55 percent on your remaining pension if it is in drawdown and paid out as a death lump sum.

Furthermore, with many conventional final salary schemes, the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.

Investment choice By moving an arrangement out of the UK, there is a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds to suit your risk profile and lifestyle stage.

Currency Risk The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. A QROPS can help you manage this risk.

Flexibility in retirement Your circumstances can change during your retirement years, for example, you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits.

In such situations, pensioners need to consider the PCLS (Pension Commencement Lump Sum – up to 30 percent with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate. Professional Advice Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.

A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.

What is risk? – Property

By Peter Brooke
This article is published on: 20th May 2013

In this series of articles we are considering the different TYPES of RISK we take when investing in different assets. This should help to build a portfolio in which we fully understand what risks each part of the portfolio expose us to.

We, as Anglo Saxon and Northern European types tend to have a bit of an obsession with owning property; it is an important part of our culture and we feel secure in the knowledge we own real estate.

It is very understandable, especially for an Englishman, why owning your own home is a very good idea (control of what it looks and feels like, feeling of “home”, long term outlook etc) but I believe that many people will tend not to look at ALL of the basic investment factors when selecting a property to buy (to live in or as a pure investment)… including risk.

Of course, location (location, location), price, quality, taxes and running maintenance costs are normally considered to some extent but for some reason many investors tend to believe that property is in some way risk free; . Like all investments we should “buy with our heads” and “sell with our hearts”, too many of us get this the wrong way round and ignore some of the issues that can really cost us dearly. Let’s look more closely at the property specific risks.

Liquidity Risk – the biggest single risk when buying property! Can you get your money out if you need it (or if something better comes along)? On the whole the answer is ‘no’ – or at least not quickly. If you find a buyer tomorrow you are unlikely to have your money back within 3 months; if you are looking for a quick sale then you can seriously damage your return by taking a low offer.

Interest rate risk – if you are borrowing to buy, as most people do (and probably should) then there is a risk that your cash flow will be affected and the total cost of your property over its life could go up dramatically, if interest rates move.

Market/Investment risk – as we saw in 2008 the price of property can fall as well as increase…. Again many investors feel that property is in some way a sure fire investment guaranteed to make money – like all other forms of investment asset this is only true if you buy the right property, in the right place at the right price. When property markets crash they tend to do so heavily and take a longer time to recover than more liquid markets.

Tax/Governmental Risk – one of the easiest assets to tax more in times of economic strife are properties, especially those owned by investors (as they tend to be easy political targets). Increases in local rates and taxes on property are easy to push through and raise a significant sum for government.

This article is for information only and should not be considered as advice. This article is written by Peter Brooke The Spectrum IFA Group

‘Ask Amanda’ – The Deux Sevres Magazine & the Vendee edition

By Amanda Johnson
This article is published on: 15th May 2013

Welcome to “Ask Amanda”.

I have been writing regularly for the Deux Sevres Magazine and am delighted to be invited to now contribute to the Vendee edition. I want to start by introducing myself.

I am Amanda Johnson and have lived in the Loudun area, with my family, for the past 7 years. I am a Financial Planner working with the regulated Independent Finance company “The Spectrum IFA Group”. We specialise in helping expatriates understand the benefits and obligations of living in the French system. Bilingual, with 20 years of financial experience in the UK, I am authorised through Orias in France and The Spectrum Group is also registered with the AMF.

Living in France is very rewarding but many of the rules and regulations, especially when it comes to taxation, inheritance, retirement planning, buying and renovating your home, differ from the UK. Working closely with colleagues throughout France ensures I can share experiences, best practices and keep you abreast of changes in French financial law. This is why I consider it important to have a servicing strategy of regular face to face meetings with my clients.

I am frequently asked about Inheritance tax planning and can usually make recommendations that ensure when you have lost a loved one any financial loss is kept to a minimum? I can help you optimise your savings by offering a range of investments in major currencies, protecting you from exchange fluctuations and from inheritance tax should the worst happen. I can also review existing pension arrangements giving advice on your future retirement plans.

Over the coming months I will be detailing questions I am asked and providing answers which have helped my customers & I hope will assist you. For a Free Consultation, on Inheritance tax, investments, retirement planning and tax efficient buying or renovating your home, or to review your current circumstances, please contact me.

What is risk? – Bonds

By Peter Brooke
This article is published on: 23rd April 2013

The term bond is broadly used in the financial industry; here we concentrate on the “investment asset” often known as fixed interest, fixed income or debt securities. Government Bonds have their own specific names too; e.g. UK GILTS, US T-Bills & German BUNDS.

If a company or government needs to raise money and doesn’t want to (or can’t) issue new shares or borrow from a bank they may issue a bond. It promises to repay the bond holder its face value on a set date in the future and until then will pay interest for the loan (the coupon). Bonds are issued on the ‘issue date’ but can be freely traded on the bond market so their price can fluctuate with normal market conditions. The fluctuation in price means that the ‘yield’ changes too – this is the fixed coupon but if bought at a different price gives a different actual yield.

When a company is wound up (e.g. on bankruptcy) the bond holders, as creditors, are repaid from the assets of the company before shareholders; this means that bonds are considered safer to hold than shares. The coupon must also be paid before any dividends. So what risks should we consider before buying bonds:

Default Risk – can the bond issuer repay me my coupon every year AND can they pay me back at the end of the term?

Interest rate risk – as rates go up, bond values fall (and vice versa). In a low interest rate environment are we exposing the value of our capital to risk if interest rates are increased?

Market risk – these are investments, and though considered safe a flow of money out of the bond markets because of lack of confidence can affect prices.

Issuer specific risk – a lack of confidence in the future of the company can, like shares, create a selling of the bonds too.

Liquidity risk – if buying smaller company or peripheral government bonds, it can be tricky to sell them should you need to quickly.

SAFETY vs RISK – at the moment developed government and many ‘blue chip’ company bonds are trading at record low yields, and though they are considered SAFE (as they are unlikely to default) this doesn’t mean they are without RISK. If a bond has a yield of 1.5% and interest rates go up by 1% it is possible to lose 10% of the capital value… this is now not LOW RISK.

Buying bonds through a fund can often help reduce many risks; the manager can choose which sectors to invest in or not and can manage the specific risks appropriately. We favour global strategic bond funds as they have a very broad remit and a very large bond universe to invest into.

This article is for information only and should not be considered as advice.

How can expats can get their ‘nest-egg’ savings working harder despite low-interest rates

By Craig Welsh
This article is published on: 2nd April 2013

02.04.13

Returns from bank savings accounts are at an all-time low, and savers are becoming increasingly frustrated. Interest rates in the western world are at extremely low levels, with the euro base rate at 0.75 percent. In the UK it is even lower, at 0.5 percent. While this helps some people, such as mortgage holders with tracker rates, savers are being punished as banks have continually cut the interest rates paid on savings accounts. Retirees drawing a pension, or looking to buy an annuity, have also been hit hard in this low-interest rate environment.

Low interest rates are here to stay
First, it doesn’t look like this will change for quite some time. The prevailing policy of central banks has been to increase money supply (quantitative easing), maintain liquidity in the banking system and keep interest rates low. Even a slight increase in the base rate over the next couple of years is unlikely to result in decent interest rates on savings.

Second, inflation is running at around 2 – 3 percent depending on which part of Europe you live in. It just feels like everything is getting more expensive, especially food and energy costs. The end result is that we are effectively losing money by leaving it in the bank.

Of course, we all need to leave some cash in the bank as our emergency fund (most financial planners would recommend around six months of income). But it is the ‘nest egg’ money (the savings that we don’t really need in the short-term) that we can do something about.

How can you get your nest egg working harder?
With the objective of ‘beating the bank’ over the longer-term, you can build a diversified portfolio of investments. In plain English this means spreading your money around and not having ‘all of your eggs in one basket’. Assets primarily fall into one of the following categories: equities (shares in companies), fixed-interest bonds, property, cash or commodities.

Lifestyle investing
You need to be clear about your ‘Risk Profile’. At Spectrum, we carry out a ‘Risk Profiler’ exercise which aims to establish the level of risk you are comfortable with and helps you understand the relationship between risk and reward. We then employ a forward-looking ‘Life-styling Process’ which means building a portfolio to match your own personal situation and objectives.

The eventual portfolio should therefore match your risk profile, usually measured from ‘cautious’ at the lower end of the scale, ‘balanced’ and then ‘adventurous’ at the higher end. The investment strategy should therefore be appropriate for your stage of life.

What assets to invest in
There are literally thousands of investment funds and vehicles to choose from. At Spectrum, we filter these by using strict criteria when choosing clients’ investments. For example we only use: UCITS compliant, EU regulated funds. This ensures maximum client protection and highest levels of reporting. Daily priced, liquid funds, so that clients do not get ‘locked-in’ to funds. Financially strong and secure investment houses. Funds which are highly rated by at least two independent research companies.

Multi-asset funds
Multi-asset funds are popular with clients as they are managed by experienced asset managers who, through active daily management, can offer access to all asset classes within a single fund. Their job is to capture capital growth while also protecting investors when markets suffer a downturn. Some fund managers have a great track record of doing this, for example Jupiter Asset Management’s Merlin International Balanced Portfolio, which has returned +34 percent (euro share class, as at end Feb 2012) since launch in late 2008, with relatively low volatility.

Multi-asset funds can be used as a ‘core’ holding within a portfolio, with more specialised and sector-focussed funds making up the rest of the portfolio.

Equities (shares)
Many blue-chip companies have very strong balance sheets and pay dividends of around 4 percent, which is higher than current interest rates. This dividend income can be re-invested into your capital (unless you need the income). The capital value of course will fluctuate but if you are investing for the longer-term you have time to ‘ride out’ any volatility.

Equity funds can be global in nature, regionally specific (for example focussing on emerging market countries) or even country specific. Other types of equity funds focus on smaller ‘growth-orientated’ companies rather than blue-chip, dividend paying stocks.

Ethical investing
Ethical funds are also an option. These are funds which only invest in ‘ethical’ companies. They are screened and assessed on criteria such as environment, military involvement or animal welfare.

Fixed-interest bonds
These include government bonds and corporate bonds. Western government bonds were traditionally seen as ‘safe havens‘, however yields are now currently as low as cash. You could consider corporate bonds, which are categorised in terms of risk (higher-yielding bonds means higher capital risk). Emerging market bond funds (with exposure to local currencies) could also be considered.

Many investors like to get exposure to bonds via a fund, which is a diversified mixture of bonds. One good option may be Kames Capital’s Strategic Bond Fund, with a return of +57 percent (euro share class, as at end Feb 2013) since launch in November 2007.

Commodities Commodity-focussed funds can be volatile and would normally make up only a small part of a portfolio. However there is potential for long-term growth by investing in companies with exposure to precious metals and resources (gold, silver, iron ore, copper) as well as other ‘soft’ commodities such as agricultural resources and the food sector.

Property
Collective property funds or property-related shares could also form a small part of your portfolio. Physical property by its nature is illiquid but by using a property fund you can obtain exposure to shares in property companies, keeping your money liquid.

Review your portfolio regularly

It is vitally important that your portfolio is regularly reviewed. One reason why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated, independent adviser who should offer regular reviews as part of their ongoing service.

At Spectrum we have an in-house Portfolio Management team, helping advisers and clients monitor client portfolios regularly for performance and suitability. One aspect of our regular reviews is ‘profit-take alerts’; when one area of your portfolio has out-performed, then why not take some profits? Investors can really benefit from such active management.

Spain – Overseas Tax Reporting and Financial Planning Seminars

By Spectrum IFA
This article is published on: 13th March 2013

An opportunity to meet with The Spectrum IFA Group

Spectrum seminars are a series of events for English speaking expatriates seeking information on a range of different financial products and services; from investments to pensions, healthcare to international transfers and banking to taxation. You can learn about Overseas Tax Reporting and how to make the most of your money, while chatting to like-minded people from your area.

Entry is free for all events; please send an email stating the event you wish to attend, to book a place. Booking is mandatory due to limited availability of seats.

Date	Location	Booking and Information
20 March 2013	Barcelona	please e-mail
27 March 2013	Menorca	please e-mail
4 April 2013	Sitges	please e-mail
22 April 2013	Mallorca	please e-mail
23 April 2013	Madrid	please e-mail

What is risk? – Bank accounts and Cash

By Peter Brooke
This article is published on: 12th March 2013

RISK: The dictionary definition: exposure to the chance of injury or loss; a hazard or dangerous chance.

We all think the concept of LOSS as being the principle financial risk, but there are different types of risk which can affect the value of our capital and the return we get from it;

The safest form of investment asset is considered to be CASH, but what are the risks (OF LOSS) if I hold €100 000 in my French bank account?

1. Counterparty & Jurisdictional Risk – If my bank (my counterparty) goes bust the French (my jurisdiction) government will currently underwrite the first €80 000 of all individual deposits – a potential 20% counterparty risk in having this much money on my account. If I bank with a big name in a well protected jurisdiction I should be ok, but should I move the excess to another bank to reduce risk?
2. Inflation Risk – with time the COSTs of goods and services tend to increase; this eats away at the real value of money or ‘it’s buying power’. Today global inflation is approximately 2.5%p.a.

But that’s not the whole story as inflation is based on an average ’basket of goods and services’. At different stages of our lives the inflation of different elements within the ‘basket’ can vary: The cost of living might drop for a family with a mortgage when interest rates fall, but an elderly couple with food and fuel bills, and no mortgage feels the pinch as oil, coal and food prices rise.

3. Interest rate risk – the bank pays me interest on my money and lends it out at a higher rate and pockets the difference as profit. If interest rates are high I am taking risk that my return may fall; can I get a similar return for similar risk elsewhere?

If interest rates are low, like today, then I am swapping interest rate risk for inflation risk by having my money on account. It is therefore the amount of my return OVER INFLATION which should be my only concern when looking at the amount of risk I am willing to take.

Today if I am lucky enough to earn 0.5% interest it means I am losing 2% per year…. guaranteed.

4. Default risk – the bank should continue to pay me the interest as it receives it from its lenders. There is a small risk here if I choose a weaker bank.

But by banking my money I am NOT taking the following risks:

Liquidity risk – I can get to my money anytime.
Investment risk (volatility of returns) – my money is just in a bank account, the interest may change a tiny amount but the capital value remains stable (except for inflation).
Opportunity risk – as my money is not tied up I can use it to buy any sudden opportunities that come along (once I understand the risk/return swap).

This article is for information only and should not be considered as advice.

Top Tax Tips for Expats in Italy

By Gareth Horsfall
This article is published on: 4th March 2013

Here are my top tax tips for living or moving to Italy.

1. Beware of the DIY approach.
Always discuss your tax situation with an experienced and knowledgeable commercialista. Taxes in Italy are not that much different to other countries around Europe and you might be surprised at just how littel you have to pay. The DIY’ers rarely find the tax breaks and end up paying more than they need to.

2. A Tax Residence of choice does not work.
Just because you are spending 3 months of the year in the UK does not mean you automatically qualify for UK residency when in fact you are actually spending more of your time in Italy. The double tax treaty will not cover you in this case.

3. Don’t think you can hide.
If you an Italian tax resident (i.e you spend more than 183 day here a year), then the Guardia di Finanza can find you. There is always a paper trial, utility bills, mobile phone records, airline tickets, credit card and bank statements, as well as visual evidence from neighbours, gardeners, cleaners etc. It is much better to be ‘in regola’ and know that the knock on the door is highly unlikely.

4. Beware the UK 90 day rule.
Quite a few people I meet try to claim UK residency because they go back to the UK for at least 90 days a year out of the last 3 years. This is not a law and is ignored by the courts. The Italian tax authorities would swiftly brush this aside as an excuse if they were trying to determine tax residency in Italy or not.

5. Don’t rely on a double taxation treaty to protect you.
A double taxation treaty is merely a statement saying that you cannot be a tax resident of 2 countries at the same time. So, you have to be resident in at least one country in any one year. The Italian’s will quite quickly assume that you are Italian tax resident if there are any signs of regular/permanent establishment in the country.

6. Be very wary of trying to be non resident anywhere.
If you are claiming to be a non tax resident anywhere then you could misunderstand the rules of the countries that you are living in. It is possible but most countries will deem you to be tax resident even if you spend less than 6 months of the year in the country. They just find it hard to accept that you can be non resident anywhere.

7. Don’t forget to register your presence.
Some people move to Italy and then decide not to report that they are living there and try and live under the radar. It is illegal to NOT complete tax returns and and a criminal offence in Italy. Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax code in Italy states that as a tax resident you are liable to taxation on your worldwide income and assets. However you might get some Double tax treaty relief’s from Italy for paying taxes in another country already.

8. Tax favoured investments in one country do not necessarily apply in Italy.
The classic example is the UK Individual Savings Account. (ISA). It is not recognised as a tax free account in Italy and is therefore taxed on income and capital gains. You might need to re-examine all your old investments and replace then with tax efficient investment for Italy (namely the Life assurance Investment Bond).

9. Watch out for tax free lump sums from pensions
The UK pension system allows a 25% lump sum pension payment on retirement. In Italy that lump sum is taxable and therefore it might be advisable to take it before you leave for the country. You might also consider moving the pension fund to a QROPS ( Qualified Recognised Overseas pension Scheme). This means you can put the pension outside the UK tax system, avoid having to buy an annuity and potentially avoid the 55% charge on the fund at death.

10. Don’t be worried about tax planning in Italy.
Life in Italy is great. Taxes are not that different to those in other European countries. If you plan early enough and do things properly you will not pay that much more than if you were a UK resident. I often tell clients that for a few hundred euros more, it really is not worth taking the risk.

How to plan your retirement

By Craig Welsh
This article is published on: 28th March 2012

28.03.12

Most expats today know they can’t rely on the state or even their company pension schemes to keep them in a comfortable retirement. Here we look at an international savings plan, designed for expats who are often on the move.

We all work hard and when the time comes to enjoy retirement, we’d like to be financially comfortable enough to enjoy it!

David moved to the Netherlands from England one year ago. The 30-year-old works in IT and earns approximately EUR 4000 per month. He is planning to work in the Netherlands for another five or six years and then he thinks he may move on to another country before probably ending up back in the UK.

He feels that he would like to have the option to retire before the company pension age of 65. He has built up some cash savings as his “emergency fund”, and this can be used in the event that he loses his job or something else unforeseen happens. He thinks it is sensible to set aside an extra EUR 500 per month for the longer-term, but wants to know how he can do this best.

Retirement planning for internationals

It is becoming abundantly clear that, as individuals, we have to take more responsibility for our own retirement planning. It will not be enough to rely on employer pension schemes (where many people are only making minimum contributions and most final salary schemes are closed to new entrants) or, indeed, government support.

As we have seen, most Western nations are now running huge deficits and are considering raising state pension ages. Furthermore, most developed countries have an ageing population, meaning that fewer people will be working to fund those who are retired.

Of course, if you are a contractor or self-employed, you will not be accruing any company pension benefits at all. Taking responsibility for your own finances is therefore even more crucial!

Often, expats are in good jobs and like to think that they will have options in later life in terms of retiring early or pursuing other projects. They can also be in a position to set some of their income aside for the longer-term, but where best to put it? When you are living and working abroad, it is often difficult to know how to use your money sensibly.

You should, of course, look into which tax-efficient savings schemes are available in your country of residence. While these differ from country to country, there are usually limits on how much you can contribute to these schemes and sometimes there are restrictions on when you can access the money.

Solution for David: International Savings Plan

David should consider an International Savings arrangement. By putting his EUR 500 per month into an International Savings Plan, David can continue paying into it even if he moves to another country. He is also not tied to a particular retirement age. Moreover, he retains control of the money at the end, as he is not required to give up the capital for an annuity (i.e. give up most of the money in the pension for an income).

Key features of an International Savings Plan:

Portability
If you move back home, or work in a different country, you can take the plan with you and you can continue to contribute to it. This is a major advantage of using an International Savings Plan, as you cannot do this with most other pension schemes. Instead, expats are often left with a number of small pension schemes scattered across different countries.

Flexibility
Most International Savings Plans will take into account the uncertainties of working internationally and allow you to control how and when you make contributions, as well as how much you contribute and in what currency. Plans can be started from around EUR 150 per month.

Control
It is a private plan, which you can control. For example it doesn’t need to tie you to a specific retirement age and doesn’t require you to take an annuity (exchanging capital for a lifetime income). You can choose when and how you use the money you have saved, and retain control of the capital.

Investment choice
Most International Savings Plans give you cost-efficient access to an excellent range of funds, to suit most risk profiles. You can switch these funds at any time. This is important, of course, as you get closer to the point when you actually need to use the money; for example, it is not advisable to be fully invested in shares with only a year or two left until you take the money. Regular reviews are important!

Tax-efficiency
Savings are usually based in a tax-efficient environment, where they can grow tax-free. Contributions are generally not tax-deductable.

Other points to note
Financial strength and regulation are important factors and each individual will have different requirements. This can depend on your current country of residence and your expected destination (i.e. where are you most likely to be in retirement?). These factors should all be taken into account as this can impact which type of savings arrangement will suit you best.

For example if you intend to retire in France, you should be aware that some plan structures (with assurance vie status) are particularly tax-efficient in France, while others won’t be.

Retirement plans should be regularly reviewed, as part of your overall financial planning. One of the reasons why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated and qualified independent adviser who should offer regular reviews as part of their ongoing service.

The sooner the better!

The sooner you start to set aside something for the long-term, the better! Your money then has more time to grow and allow you to build a comfortable retirement pot. Consider the “Cost of Delay”; the lost contributions and compounded interest that would have been earned. “Putting it off for now” can cost you a considerable amount and only means you have to save more in later years.

The advice is therefore to set aside whatever you can from your monthly income and start planning today.