EU Citizenship Rights for Brits?

By Gareth Horsfall
This article is published on: 17th November 2016

17.11.16

The EU Parliament is to discuss the possibility of EU membership for citizens of countries that vote to leave the EU. A proposal was made by an MEP in Luxembourg.

The idea is to guarantee those who want the same rights as full EU citizens, including the right of residence in the EU, to be able to vote in European elections and be represented by an MEP.
I have to admit that the proposal sounds a nice idea but I don’ t see it being accepted.

Human capital will be a big political maneuvering tool in the BREXIT negotiations and if they offered any UK citizen the opportunity to have EU rights then I don’t see how this would aid the UK’s bargaining position. Equally, it may be a incentive for other EU countries to vote to leave as well.

I will follow developments and report them as they arise…

SANCTIONS FOR UNDECLARED ASSETS IN ITALY
This is a subject which I haven’t touched on for some time. What are the penalties for undeclared, and subsequently discovered, assets for residents of Italy?
The penalties for non declaration range between 3% and 15% of the value of the asset, plus any fines for late payment. The percentage is determined by the investigating tax officers depending on the gravity of the misdemeanour.

If you have undeclared money in tax privileged regimes or countries where there is not an adequate exchange of fiscal information then the sanctions are doubled: 6% – 30%, plus fines for non declaration.

This is relevant given the automatic exchange of financial information which is now in force under the OECD Common Reporting Standard.
I know that a number of you have been receiving letters from non ItalIan banks asking you to quote your Tax Identification Numbers (TIN) for reporting purposes. This is your Codice Fiscale for Italian residents. By completing this letter it allows the foreign financial entity to report your information, automatically, to the Italian authorities.

President Trump “The brand and businessman”

By David Hattersley
This article is published on: 15th November 2016

15.11.16

Firstly excuse the pun, but if one considers Donald Trump as a “brand” then he did one great job in getting elected as President of the USA. Somehow he sensed that the electorate had grown tired of the political elite and that the establishment needed to be changed and shaken up. That is common knowledge, after all Farage did it based on the cigarettes and beer outside a pub. The same applies to Margaret Thatcher.

Putting it into perspective though, others have gone on to challenge the established order in their respective business fields that then became global household names. The likes of Branson, Doug & Mary Perkins (Specsavers) , Michael O’Leary (Ryan Air) and James Dyson all challenged the status quo and vested elitist interests at the time, much to their dismay and their eventual demise. All the former have gone on to be recognized as global brands that have led a revolution in their fields in their own lifetimes.

In this respect President Trump has, forgive the pun, “out trumped” the recognized establishment in recognizing a true niche market that would follow him. He marketed a particular brand, appealing to a certain audience that felt that it had been left behind in the event of globalization and other ills.One now has to consider the impact on the rest of the world and its impact on investment. In his early days as President elect, he has already shown signs of an element of pragmatism, like a businessman would do towards the need to understand and temper the advertising campaign – for example, recognising what is good in Obamacare and what needs to be modified fiscally to make it a success.

It also depends on who he appoints as his “Board of Directors”, to help him carry through the reforms that are needed for his “New Company” will succeed. No doubt and hopefully, the same will apply to business in general, the need to negotiate where need be, to gain better terms, but at the same time realize the greater picture. He is after all now the CEO of the USA, and that needs to be understood first and foremost.The old order is being replaced, old perceptions will no longer be relevant, and that too can have an impact. As much as Thatcher-ism and Reaganomics changed the world, the Brexit and President Trump’s election will change it too. One has to follow that the old order has been overturned and that whilst the new company has just started, it too needs to act like a company, a far cry from the current political elite. It is almost that a revolution is taking place.

In relation to investments, this means change, but change brings opportunities. Realising this takes skill, and the selection of funds and managers that recognise that change, rather than following old ideas that are now outdated, need to be considered. At the moment though, one cannot take knee jerk reaction as the inauguration does not take place until January 2017, so investors need to keep an eye on the near future, whilst considering other investments that are unlikely to be affected by the above changes.

Brexit, US Election & Exchange Rates

By Spectrum IFA
This article is published on: 7th November 2016

There are so many things that I could write about this month and it’s difficult to choose one above the others. So a quick summary of what’s topical might help.

BREXIT

What an interesting conundrum that the UK government is faced with now! Actually not just the government, but the MPs who personally wanted to remain in – or leave – the EU, before the Referendum took place, but represent constituencies that voted in a different way to those MPs personally want.

Will MPs put their personal feeling aside and vote according to what their constituents want? Would this effectively change the result of the Referendum. At the very least, MPs should ensure that their constituents are provided with sufficient information on all of the issues that can arise if the UK leaves the EU. Constituents can then make an informed decision, if given the opportunity to express their opinion to their MP.

It’s interesting that the Court’s decision was based on the argument that the government cannot use executive powers to trigger Article 50 of the Lisbon Treaty because it would effectively mean overturning an act of Parliament. However, Parliament is sovereign – it can create laws and only Parliament can take these away, not the government. The interesting word here is “sovereign” because this is exactly what the Brexitiers want to get back from the EU.

It’s well known that Theresa May still wants to push forward with triggering Article 50 by the end of March 2017. However, unless the government wins its appeal against the Court’s decision, she may not get her wish.

Despite the ‘certainty’ in law of the Court’s decision, the result creates more uncertainty at this point, as to whether or not Article 50 will ever be invoked. This is likely to continue to create pressure on Sterling (more on this below), and market volatility, until such time as when the process has either been completed or dropped altogether.

On the bright side, if MPs are to debate the terms of what the UK should negotiate from its withdrawal from the EU, before Article 50 is invoked, perhaps we may have some idea of what the outcome of a Brexit may look like. However, it’s a ‘catch 22 situation’, as the EU will not negotiate terms with the UK until Article 50 is invoked and so there is no guarantee that the UK will get what it wants – whatever the outcome of the Parliamentary debates.

So Brexit may not now mean Brexit, but at the very least, it may be further away than we thought.

US Presidential Election

I am writing this article a few days before the election. It seems that both candidates may have skeletons in their closet – Clinton with her emails and Trump with his tax returns. During the last few days, Trump went ahead in the polls and now Clinton has pipped ahead again. In reality, the polls are too close to call and the last time that I wrote that was just before the EU Referendum. Look what happened there!

Markets are beginning to price in the possibility of a Trump win. If it becomes a reality, there is likely to be a large sell-off in US equities (and it can’t be ruled out that this may ripple through to other markets). This is contrary to what would usually happen after a Republican victory, but then, Trump has contrarian views to those of the normal Republican policies.

However, as markets begin to reflect on positive tax changes and the looser regulatory environment that Trump supports, we might see a V-shaped turn, perhaps a repeat of what happened after the Brexit vote.

If the odds continue to move against Clinton in the final days approaching the election, the markets are likely to move further downwards. However, if the outcome is a Clinton win, then it could bring with it a bounce back in markets.

Longer-term market views of a Clinton win are positive, but not so for a Trump win. There is a high possibility that his anti-trade policies with the rest of the world would cause a large slowdown in growth. Unlike the UK that wishes to close its borders to immigrants, but still wants to trade with the world, Trump seems to be determined to curtail imports through a variety of policies, all of which are within the power of a president, with or without the support of Congress. As a result, a Trump trade-led recession could even tip Europe back into full-blown recession, which would likely precipitate a serious European banking crisis, something which is already a concern. Additionally, the effect on emerging markets could be very negative.

By the time you read this article, we may know the results, or will do shortly after. In the meantime, I am very much hoping that the American people do the right thing on the day.

Sterling Exchange Rate

Can it get worse? Well yes, it can and yes, I think it will. I would not be surprised to see Sterling reach parity with the Euro and lately, I have started to think that it could go even lower. Unfortunately, the downward pressure on Sterling is likely to continue until Brexit is over

If you are retired and receiving UK pensions, then you will be feeling the difference. Even with the little bounce back after the Court’s decision, Sterling has still fallen around 16% since the day following the EU Referendum and around 25% over the last year – so in other words, that’s 25% reduction in your pension income. If you also have investment income in Sterling, this means that your capital has to earn 25% more than it did a year ago, just to maintain the same rate of return relative to Euro. Even worse, your Sterling capital has lost 25% of its value in Euro terms.

Sterling is undervalued and there is no doubt that it will eventually rise from the ashes. But when and what do people do in the meantime?

If you are using a bank to transfer Sterling to Euros, you are likely to be receiving a very poor rate of exchange. Hence, it is worth looking at using a forex company for your currency transfers, as the exchange rate that the companies offer is usually higher than the banks. If you do not already have an account with a forex company and you would like to know more about this, please contact me. Even if you already have an account, it can be worth shopping around and we can refer you to a reputable company.

If you are lucky enough to have some capital in Euros already, it might be worthwhile using this, in lieu of your normal Sterling source of income, or at least for part of your income needs. However, everyone’s situation is different and so it is very important to take advice before doing this to make sure that your longer-term objectives are not put at risk.

Financial Review

It is at times like this that people need financial advice, more than ever. Hence, if you would like to have a confidential discussion about your situation, or any other aspect of retirement or inheritance planning, you can contact me by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an adviser is available immediately for an initial discussion.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of pensions, investment of financial assets or on the mitigation of taxes.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.

Pensions Time Bomb

By Gareth Horsfall
This article is published on: 3rd November 2016

03.11.16

It could be said that uncertainty is the nemesis of good long term financial planning and living in today’s world you could be forgiven for throwing your hat in and tucking yourself away for a few years: Hard Brexit, Soft Brexit, Donald Trump, Italian Constitutional Referendum, German and French elections, the rise of nationalism, and the list goes on.

However, time always marches on and we either get left behind or plan forward. No one has ever complained to me (yet) about finding ways to legally save tax, finding ways to save money, getting better investment returns, or having more money then they had planned for.

So with this in mind I want to return to a subject which I have touched on a few times before but which has been hurled back to the top of the financial planning priority charts: UK Final Salary Pension Schemes.

This article is specifically for anyone who holds any type of corporate final salary pension plan. (It does not relate to the UK state pension or UK government pension schemes, eg Teacher, Doctor, Army etc).

Starting with the bad news

I want to break some bad news to holders of those historically ‘gold plated’, final salary pensions schemes. The schemes that promise you a certain level of income based on your last few years salary level with your employer.

They are no longer gold plated!

This is quite a complex area to try and explain, but let me try and sum it up in a nutshell.

When the population starts living longer and the pension scheme can’t ask anymore contributions from the new members (without crippling them financially), then the cost of looking after the existing retirees for a much longer time than the scheme had anticipated (due to medical advances), becomes much greater than the net new money being put into the scheme.

If this were a family, it would be in debt. A mortgage, it would have defaulted. A company, it would have gone bankrupt.

Another problem is that these pension schemes need such a secure income stream to pay the retirement incomes of the retirees that they have to invest the scheme assets in safe, but incredibly low yielding asset such as Government Bonds.

And there you have the problem. If you make very attractive promises to retirees, based on your calculations many years ago, but the financial landscape changes dramatically during that time, then your original calculations are now totally obsolete. More money out than coming in spells TROUBLE!

Examples:
If you want to know how bad this situation is, then take a look at these figures. (These show the market value of the company in billions, versus the liability of their long term pension obligations, ‘IN BILLIONS’. The figures are staggering)

	VALUE	PENSION LIABILITY
BAE Systems	£15.802bn	£29.236bn
RSA Insurance	£4.332bn	£7.126bn
British Telecom	£36.657bn	£51.210bn
Sainsbury	£4.946bn	£7.696bn
Rolls Royce	£10.572bn	£11.564bn
RBS	£39.954bn	£35.152bn

These are the worst in the UK. If these companies had to legally honour their pension liabilities, they would be bankrupt.

But, let’s not be silly about things. The Government would never let companies like this go bankrupt, so they allow them to continue to operate the pension funds off their balance sheets.

And, to make it even more enticing they allow them another ‘get out clause’…outright default!, right into the UK Pension Protection Fund. A UK Government run scheme which guarantees to pay the pensions (up to certain limits) in the event that the company says it can no longer do so.

The burden moves to the taxpayer!

However, as low interest rates and retirees living longer wreck their long term calculations, more and more pension schemes are opting to close down and place their members under the Pension Protection Fund. As more and more members apply, the burden becomes greater on the UK public purse. Do they cut the maximum amount of pension you could receive? What about the benefits you might lose?

These are all very serious questions for people who are currently members of final salary pensions.

However, there is some potential light at the end of the tunnel. A transfer away from the scheme, with a lump sum from which you can invest and take income from, as though you had your own personal pension.

The advantages and disadvantages have to be weighed up but with more schemes in financial difficulty there is a distinct possibility that it might be worth your while.

NOW! is the time to find out the value of your pension

Low interest rates and stress on the pension fund means that transfer values out are at historical highs. The companies are happy to rid themselves of you and will pay handsomely to do so, and the low interest environment means the transfer out values are much higher than you might imagine.

But low interest rates will not continue forever. Brexit and the fall of GBP will create inflation and that means interest rates will have to rise.

Get the information now before it is too late

Lastly, let’s leave things on a good note. If the benefit of transfer out is clear and present after an analysis of the situation, then you can also pass your income onto your spouse/partner, and/or leave the asset to your family on death. The benefits are not lost when you die.

There are benefits on both sides of the argument and we provide a FREE analysis to advise our client whether to transfer or not. If you want to look into this area of your retirement plans and potentially secure your long term income stream, then you can contact me

The Brexit or Invoking the Law of Unintended Consequence.

By David Hattersley
This article is published on: 28th October 2016

28.10.16

Since the Brexit vote most news has been about potential Trade deals, and Sterling’s fall. However it perhaps has gone unnoticed, that from a variety of differing scenarios with outcomes by no means certain, a Constitutional crisis could be gathering steam.

It all stems back to the European Referendum Act 2015, that didn’t consider the variety of outcomes and was legally non binding. In addition, the power of the Royal Prerogative that was curbed when King John signed the Magna Carta in 1215 is being used by the Government, and in essence his successor Theresa May, to make or break treaties with other countries including the EU, in this case invoking Article 50 without the need for it to be passed into law via an Act of Parliament.

Critics of this say that the 1972 Act (based on the UK joining the Common Market) ceded power from the UK Parliament and allowed EU law to pass into UK law. This gave the British people protection under a new constitution based on EU law (based on Napoleonic Law). The UK has never had a written constitution that protects it citizens and gives them certain rights. It is being argued by a variety of bodies via legal challenges against the PM for using the Royal Prerogative to take away rights bestowed to Parliament. Some go as far to say “enforced removal” of citizenship rights from 65 million people would be “completely unprecedented “in modern democracy. Expat campaigners are also arguing that the “rights enjoyed by British citizens beyond these shores are so fundamental that legislation is required to take them away”.

The legal challenge has been mounted to the process of withdrawing the UK from the EU without a vote in Parliament and is going to the High Court, to be heard within the next two weeks. If the government lose due to Judges imposing their will (note unelected!), it would then be ironic for this eventually being heard by the European Court of Justice, the UK’s next step .

If the UK government win this current legal challenge on the basis “ Respecting the outcome of the referendum and giving effect to the will and the decision of the people “, that too could lead to further challenges for whom the right to vote was taken away i.e. a large percentage of Ex Pats and those Europeans citizens in the UK.

Additionally, working on that basis could give credence to Scottish Independence should they have a 2^nd referendum and vote to remain in Europe. The same could be said of Northern Ireland, which has its own Parliament as well, and perhaps even Gibraltarians, as they overwhelmingly voted to remain.

The other major crisis in the making is the “Great Repeal Bill” debate that is due to be put to the House next year. A number of scenarios could occur. Many M.P.’s supported remain and the government still has deep divisions within its ranks. With only a majority of 10 seats in the House, a loss could force a vote of confidence, an early election, and a greatly disenchanted and potentially a disenfranchised electorate that voted to leave.

If they win then it passes to the House of Lords, who overwhelmingly wished to remain in the EU, and should they vote against it, take note Leave campaigners, an unelected body voting against the wishes of the majority!!

The Law of Unintended Consequence reigns supreme, or quite simply chaos. It makes Spain’s recent political turmoil insignificant, and I wonder how many of those that voted to leave or indeed did not vote at all, would have wanted these potential outcomes.

What would be even more ironic would be that the UK Government, in its current format, with many of the Ministers that supported the Leave campaign in positions of power, having to go to the European Court of Justice to overrule either singularly or both the UK Judges or the House of Lords to push through the Brexit, whilst at the same time preside over the breakup of the Union.

Should you consider transferring your Final Salary Pension?

By Spectrum IFA
This article is published on: 28th October 2016

28.10.16

A big question and something that raised a lot of interest at our recent Tour de Finance event that took place at the Domaine Gayda. There have been a number of recent changes within the UK economy and the UK pension world that make a review of any pension(s) essential for those living or planning to live outside the UK.

Final Salary pension schemes (also referred to as Defined Benefit schemes) have long been viewed as a gold plated route to a comfortable retirement. However, there is wide opinion now that there are likely to be large changes ahead in the pension industry. The key question is will these schemes really be able to provide the promised benefits over the next 20+ years?

Why Review now?

Record high transfer values

The calculation of transfer values from these types of scheme is complex. One of the factors that determines how much the pension scheme has to pay to transfer a Member’ benefits is gilt yields, which are at an all-time low. This has resulted in transfer values to be at an all-time high and we are finding that some transfer values have increased by over 30% in the last 12 months.

Scheme Deficits
Actuaries Hyman Robertson now calculate the total deficits on the remaining UK final salary pension schemes as £1 Trillion! Since the employers are ultimately responsible for funding the cost of the pension benefits, unless they have very deep pockets, this puts the security of the benefits at risk.

TATA Steel/BHS
The final salary pension schemes of these two companies have been in the news. These recent examples show that the very large deficits of their final salary pension schemes cause a number of problems; in particular no one wants to purchase these struggling companies as the pension deficits are too big a burden to take on.

Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers. There is a strong argument that saving thousands of jobs is in the national interest, if that just means trimming down some of these “gold plated benefits”.

Pension Protection Fund (PPF)
This fund has been set up to help the schemes that do get into financial trouble, but two points are key. Firstly, it is not guaranteed by the Government and secondly the remaining final salary schemes have to pay large premiums (a levy) to the PPF in order to fund the insolvent schemes. As more schemes fall into the PPF, there are less remaining schemes that have to share the burden of this cost. Their premium costs will increase, as there will be less remaining schemes to fund the PPF levy.

It is likely the PPF will end up with the same problems as the remaining final salary schemes, as it is unlikely to have the money to pay the “promises” for the pensioners. Additionally, the PPF will most likely have to reduce the benefits they pay out.

Pension changes that have already happened
Inflationary increases have already been allowed to change from Retail Prices Index (RPI) to Consumer Prices Index (CPI). This change looks reasonably small, but over a lifetime this could reduce the benefits by between 25% and 30%.

In April 2015, unfunded Public Sector pension schemes have removed the ability for transfers, so schemes for nurses, firemen, army personnel, civil service workers etc. can no longer transfer their pensions. Now these are blocked, it will be easier to make changes to reduce the benefits and no one is able to respond by transferring out of the schemes.

When this rule was being considered the authorities also wanted to block the transfer of funded schemes, i.e. most final salary schemes that are available. This could come back onto the discussion table in the future.

Autumn Statement (Budget)
This is on 23 November 2016. Could the Government make any further changes to UK pension rules? When Public Sector pensions were blocked, there was a small window of time to transfer. However, most people couldn’t get their transfer values in time as the demand was so high. People who review their pensions now may at least have time to consider options.

Could Brexit end the ability to transfer pensions away from the UK?

Reasons why schemes are in difficulty:

Ageing population
People now expect to live around 27 years in retirement, when these schemes commenced the average number of years in retirement was 13 years.

Lower Investment Returns
Investment returns have not been as high as expected. Also there has been a very large reduction in the amount invested in equities in final salary schemes; this is now around 33%, but in 2006, the average equity content was 61.1%.

Benefits were too good
Simply, many of the final salary schemes were ‘too good’. In 2009, around 24% of employees’ salaries was needed to fully fund final salary schemes that provided the standard level of benefit of 1/60^th for each year of pensionable service. In 2016, that rate is now 50%! Clearly, it is unrealistic to expect an employer to meet the liability.

What could happen in the Future?

An end to the ability to transfer out of all final salary schemes?
Increase the Pension Age, perhaps in line with the increase of the State Pension?
Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)?
Reduction of Spouse’s benefit?
Increase of contributions from current members?
Lower starting income?

Act now! Review your pensions.

It does no harm at all to at least have a review of your pensions. In fact, it is prudent to do so. At The Spectrum IFA Group, we carry out a full transfer analysis, which is in accordance with the UK Financial Conduct Authority rules, before making any recommendation to transfer pension benefits. Doing nothing at all can often be an expensive mistake.

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 .

Pensions Time Bomb

By Gareth Horsfall
This article is published on: 27th October 2016

27.10.16

This Blog is specifically for anyone who holds any type of corporate final salary pension plan. (It does not relate to the UK state pension or UK government pension schemes, eg Teacher, Doctor, Army etc).

STARTING WITH THE BAD NEWS
I want to break some bad news to holders of those historically ‘gold plated’, final salary pensions schemes. The schemes that promise you a certain level of income based on your last few years salary level with your employer.

THEY ARE NO LONGER GOLD PLATED!
This is quite a complex area to try and explain, but let me try and sum it up in a nutshell.

If this were a family, it would be in debt. A mortgage, it would have defaulted. A company, it would have gone bankrupt.

Another problem is that these pension scheme need such a secure income stream to pay the retirement incomes of the retirees that they have to invest the scheme assets in safe, but incredibly low yielding asset such as Government Bonds.

And there you have the problem. If you make very attractive promises to the retirees, based on your calculations many years ago, but the financial landscape changes dramatically during that time, then your original calculations are now totally obsolete. More money out than coming in spells TROUBLE!

Examples:
If you want to know how bad this situation is, then take a look at these figures. (These show the market value of the company in billions, versus the liability of their long term pension obligations, ‘IN BILLIONS’. The figures are staggering)

These are the worst in the UK. If these companies had to legally honour their pension liabilities, they would be bankrupt.But, let’s not be silly about things. The Government would never let companies like this go bankrupt, so they allow them to continue to operate the pension funds off their balance sheets.And, to make it even more enticing they allow them another ‘get out clause’…outright default!, right into the UK Pension Protection Fund. A UK Government run scheme which guarantees to pay the pensions (up to certain limits) in the event that the company says it can no longer do so.The burden moves to the taxpayer!
However, as low interest rates and retirees living longer wreck their long term calculations, more and more pension schemes are opting to close down and place their members under the Pension Protection Fund. As more and more members apply the burden becomes greater on the UK public purse? Do they cut the maximum amount of pension you could receive? What about the benefits you might lose?These are all very serious questions for people who are currently members of final salary pensions.However, there is some potential light at the end of the tunnel. A transfer away from the scheme, with a lump sum from which you can invest and take income from, as though you had your own personal pension.The advantages and disadvantages have to be weighed up but with more schemes in financial difficulty there is a distinct possibility that it might be worth your while.NOW! is the time to find out the value of your pension
Low interest rates and stress on the pension fund means that transfer values out are at historical highs. The companies are happy to rid themselves of you and will pay handsomely to do so, and the low interest environment means the transfer out values are much higher than you might imagine.But low interest rates will not continue forever. Brexit and the fall of GBP will create inflation and that means interest rates will have to rise.Get the information now before it is too late
Lastly, let’s leave things on a good note. If the benefit of transfer out is clear and present after an analysis of the situation, then you can also pass your income onto your spouse/partner, and/or leave the asset to your family on death. The benefits are not lost when you dieThere are benefits on both sides of the argument and we provide a FREE analysis to advise our client whether to transfer or not. If you want to look into this area of your retirement plans and potentially secure your long term income stream, then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell: +39 3336492356

	VALUE	PENSION LIABILITY
BAE Systems	£15.802bn	£29.236bn
RSA Insurance	£4.332bn	£7.126bn
British Telecom	£36.657bn	£51.210bn
Sainsbury	£4.946bn	£7.696bn
Rolls Royce	£10.572bn	£11.564bn
RBS	£39.954bn	£35.152bn

Time to Review Your Final Salary Pension

By Craig Welsh
This article is published on: 27th October 2016

27.10.16

Final Salary pension schemes, also known as Defined Benefit schemes, have long been viewed as a gold-plated route to a comfortable retirement. In the past, many advisers, including ourselves, would have been sceptical about people transferring out of such a scheme. However, there have been huge changes in UK pensions legislation and there are likely to be further changes ahead. The key question here is; will these schemes be able to provide the benefits they have promised over the next 20+ years?

Why Review Now?

In many cases, it may still be best advice to leave the pension where it is. And a transfer out requires highly specialised and regulated advice. However, there are many compelling reasons why a review makes sense.

Record high transfer values
UK gilt yields are at an all-time low and this has pushed up transfer values to be an all-time high; some transfer values have increased by over 30% in the last 12 months. Many clients are quite surprised to learn their scheme which projects an income of GBP 10,000 per annum in retirement offers a transfer value of over GBP 330,000!

Scheme Deficits
Actuaries Hyman Robertson now calculate the total deficits on remaining final salary pension schemes as £1 trillion.

TATA Steel/BHS
Recent examples show that very large deficits cause several problems. No one wants to purchase these struggling companies as the pension deficits are too big a burden to take on. Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers. There is a strong argument that saving thousands of jobs is in the national interest, if that just means trimming down some of these “gold plated benefits”.

Pension Protection Fund (PPF)
This fund has been set up to help pension schemes that do get into financial trouble. Two points are key. Firstly, it is not guaranteed by the Government and secondly, the remaining final salary schemes must pay large premiums (a levy) to the PPF to fund the liabilities of insolvent schemes. As more schemes fall into the PPF there would be fewer remaining schemes that must share the burden of this cost. Their premium costs will increase as there will be fewer remaining schemes to fund the PPF levy.

It is possible that the PPF will end up with the same problems as the final salary schemes; i.e. they won’t have the money to pay the “promises” for pensioners. Additionally, the PPF will most likely have to reduce the benefits they pay out.

Pension Changes Already in Place
Inflationary increases have already been permitted to change from Retail Prices Index (RPI) to Consumer Prices Index (CPI). This change looks reasonably small, but over a lifetime this could
reduce the benefits by between 25% and 30%.

In April 2015, unfunded Public Sector pension schemes have removed the ability to transfer out, so schemes for nurses, firemen, military personnel, civil service workers etc. are no longer transferable. Now these are blocked, it will be easier to make changes to reduce the benefits and no one can respond by transferring out.

When this rule change was being discussed the authorities also wanted to block the transfer of funded non-public sector schemes, i.e. most corporate final salary schemes. There is therefore a risk that transfers from all final salary schemes could be blocked or gated.

Autumn Statement (Budget)
This is expected on 23 November 2016. Could the Government make any further changes to Pension rules? When Public sector pensions were blocked, there was a small time window to transfer. People who review their pensions now may at least have time to consider options.

Could Brexit end the ability to transfer pensions away from the UK? This is still unknown, but pensions are often a soft target of government taxation ‘raids’.

Reasons Why Schemes Are In Difficulty

Ageing population. People now expect to live around 27 years in retirement. When these schemes commenced the average number of years in retirement was 13 years.

Lower Investment Returns. As schemes have become underfunded, they have invested more conservatively. Average exposure to equities (shares) is now around 33%, whereas in 2006 the average equity content was 61%.

Benefits were too generous. In simple terms, many of the final salary schemes were too good. In 2016, if you became a member of a 1/60th scheme then your company would need to add 50% of your salary to make sure the benefits can be paid. Clearly this is unrealistic.

What Could Change?

· An end to the ability to transfer out of such schemes

· An increase to the Pension Age, perhaps in line with the increase of the State Pension

· Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)

· Reduction of Spouse’s benefit

· Increase of contributions from current members

· Lower starting income

What Are The Alternatives?

QROPS schemes have proven very popular in recent years as they offer expats excellent flexibility. While a QROPS is not the only alternative, and each individual case needs properly reviewed by a suitably qualified adviser, the benefits are clear;

· The ability to pass the pension fund on to heirs

· The option to change currency

· You can access the benefits flexibly via income drawdown (can vary the income you take)

· Wide investment choice to suit your risk profile.

At The Spectrum IFA Group, your locally-based adviser will work together with our internal Pensions Review team and conduct a full analysis of your current arrangements.

The Spectrum IFA Group exhibited at the Barcelona International Community Day

By Jonathan Goodman
This article is published on: 26th October 2016

26.10.16

For the third year running The Spectrum IFA Group exhibited and supported the Barcelona International Community Day held at the Maritime Museum in Barcelona. A great venue and well organised, many new contacts were made as well as the deepening of existing relationships. Chris Burke’s presentation was very well received by a large audience of expats.

The event is very informative and totally in line with The Spectrum IFA Group’s modus operandi and we are certain to be able to assist many new and some not so new expats with their overall long term financial planning.
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The Spectrum IFA Group co-sponsored NADFAS lecture

By Charles Hutchinson
This article is published on: 25th October 2016

25.10.16

The Spectrum IFA Group co-sponsored an excellent NADFAS (National Association of Decorative & Fine Arts Societies) lecture on 19^th October at the San Roque Golf & Country Club on the Costa del Sol. The Spectrum IFA Group was represented by one of our local advisers, Charles Hutchinson who attended along with our co-sponsor Paul Ellis 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 event, over 130 attendees (all our target market) were entertained by a talk on The Life and Work of Henry Murphy, one of Britain’s best but most neglected Goldsmiths. The presentation was given by John Benjamin of Antiques Roadshow fame, who kept the audience gripped with his knowledge and humour. We were fortunate enough to have him agree to private valuations of attendees’ jewelry and especially any Fabergé items before the lecture.

The talk was followed by a Spectrum sponsored drinks reception which included a free raffle for prizes including a CH obtained (very difficult to find, as out of print) glossy coffee table book on Henry Murphy and his works by John Benjamin himself which he gladly signed for the lucky first prize winner. Also bottles of Champagne and Cava. Currency Direct supplied a bottle of fine Brandy and a very useful car sunshade.

All in all, a great turnout and a very successful event at a wonderful venue. The Spectrum IFA Group are very proud to be involved with such a fantastic organisation and we shall be sponsoring the December lecture and drinks reception after, when we will have Tilney Bestinvest as co-sponsors.

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