Final Salary Pension changes: The Budget 2014

By Chris Burke
This article is published on: 5th July 2014

Further to the UK budget announcement earlier this year regarding UK Final Salary pensions, many are asking what their options are and how best to manage their final salary UK pension. The key concerns people have regarding final salary pensions are as follows:

Security of Final Salary Pensions

90% of UK company pension schemes are underfunded; that is to say the scheme no longer has sufficient funds to pay the full pension entitlement in retirement to all of its members. Due to improved healthcare and quality of life, people are living longer; this creates a greater burden on final salary pension schemes. The retirement age has risen over the years from 55 to 65; life expectancy in Europe has also risen from 67 to 84. Companies used to provide on average 12 years of pension income, now it is more likely to be 19 years.The figures no longer add up and so the ‘pension gap’ continues to widen. For these reasons final salary pension schemes are now mainly closed to new entrants. With no new scheme members, and thus no more contributions, there is no new capital covering the retired member’s incomes. There is a rising concern for how will this deficit be covered in future.

Should I leave my Finals Salary pension in the UK or transfer it out?

If you have a final salary pension in the UK you have three options. You can start receiving your pension before the normal retirement date, usually with a penalty, wait until the normal retirement age and receive an income, which usually rises with inflation, or you can obtain a Cash Equivalent Transfer Value (CETV). In the latter scenario you can exchange the promise of a retirement income for a pot of money you can manage and invest yourself, without the liability of the company scheme’s increasing deficit. Before considering this process, your CETV needs to be carefully evaluated against the benefits of a ‘guaranteed’ income (guaranteed so long as the company and pension scheme remains solvent). This evaluation depends on the return you could expect to obtain from your transferred pot against the currently ‘promised’ income from your current final salary scheme. It is very important to evaluate your options with a qualified financial pension planner to work out the risk, reward and suitability of a pension transfer for your individual scenario. Every personal pension situation needs to take into account your age, company scheme, your family, location and many other factors which are different for everyone.

How do the changes affecting the UK budget this year affect my Final Salary pension?

Perhaps the biggest change in the UK pension budget is that, from the age of 55, you can ‘cash in’ your UK pension while paying the marginal tax rate i.e. the income tax band that applies to you, based on your earnings in addition to the amount of your pension you are withdrawing as a lump sum. (This change is still going through consultation and we will know at the end of July if and when this new rule will be allowed to commence). However, this change applies only to defined contribution pension schemes, so how does this effect final salary pension schemes? Further to the increasing final salary funding gap, the UK government intend to prevent members transferring their final salary pensions into a personal pension cash pot. The main reason is that as scheme members leave, there is less capital and more strain on the scheme to recuperate the deficit for its remaining member’s retirement income. It could decimate the company pension scheme industry if members left at an alarming rate; many jobs would be lost. Therefore, if you want the option of transferring your final salary pension into a personal cash pot pension (defined contribution) your time to do this could be increasingly limited. Some analysts and institutions are forecasting that from late July 2014 transfers will be either blocked or have significant restrictions on who can transfer and where to.

What does all this mean?

If you want the choice of cashing in or transferring your final salary pension after a qualified evaluation of the benefits and drawbacks, you may have limited time to do so. Exiting from a final salary scheme could have a significant impact on your retirement income for better or for worse. The advice given must be founded on a close analysis of your financial needs and residential situation – therefore if you would like to know your options before they may be taken away, we recommend an evaluation as soon as possible.

Other Thoughts

A final salary pension, so long as the scheme is solvent, adheres to the rules of the administrator that created it i.e. an income for life linked to inflation, can be a good scheme. However, a final salary pension transferred into a cash equivalent value could allow much greater flexible benefits, which include, no early retirement penalty, no more currency risk, larger Pension Commencement Lump Sum, higher initial income and security your pension is now fully under your control. Of course, none of this even takes into account the fact that moving your pension outside of the UK means any money left after your death would go to who you choose as dependants, rather than currently a spouse and then predominantly the other company pension scheme members of which you were in.

QROPS Pension Transfer

By Chris Webb
This article is published on: 4th July 2014

If you ever worked in the UK, no matter what your nationality, the chances are you were enrolled in a private pension scheme. The UK government continues to tweak legislative changes affecting the expat’s ability to move this pension offshore. On the surface, these changes appear to limit transfer options, but in reality they have strengthened the legal framework offering expats continuing advantages.

Background

When you leave the UK, if you have a Final Salary pension, then your fund remains valid but is deferred and any increases will usually be limited to inflation until you reach retirement age. The pension income you then receive is taxable in the UK no matter where you are based in the world, you may be entitled to a tax credit if there is a Double Taxation Treaty in the country you reside. Once you die the pension will continue in the form of a spouse’s pension if you are married; otherwise it will cease. When your spouse dies, all benefit payments come to an end.

With a personal pension, if you take any part of your fund and then die before you fully retire, a lump sum can be paid to your spouse. Although this is exempt from inheritance tax there is a special lump sum benefits charge, also known as “death tax”, payable on the remaining fund. This is at the rate of 55% of the benefit amount, although the recent budget changes have advised that this is likely to be reduced in the near future.

In April 2006 Her Majesty’s Revenue and Customs (HMRC) introduced pension ‘A’ day. This liberalised UK private pensions and allowed people leaving the UK to transfer them overseas, often to a new employer. In doing this the UK complied with European legislation which allows all citizens the freedom of movement of their capital. Thus ‘Qualified Recognized Overseas Pension Schemes’ (QROPS) were born.

Implementation

QROPS are not necessarily the right thing in every single case. In order to decide whether it would be advantageous to transfer your pension or leave it in the UK, with the intention of drawing the benefits in retirement, please contact me so that I can carry out a personalised evaluation. There may be compelling arguments, outside of the evaluation alone, which are often overlooked and may affect you in the future.

One of these is that a large number of UK schemes are currently in deficit to the point that they will be unable to pay future projected benefits. This would mean that even though it looks as though there are arguments to leave your UK pension in situ it may actually be wiser to transfer it.

In order for you to make the best decision you need professional advice on what would be the best solution for you. This will entail seeking details of the current UK schemes, including transfer values, the types of benefits payable to you and options going forward when you get to a retirement date and when you die.

I have detailed below some advantages & disadvantages of a QROPS pension transfer, using the jurisdiction of Malta as a reference point.

Advantages

1. Lump Sum Benefits

If you transfer your benefits under the QROPS provisions to a Malta provider, in accordance with the rules of this jurisdiction, you may be able to take a pension commencement lump sum of up to 30% (unless you have already taken this lump sum from the UK pension). Under the current HMR&C (Her Majesty’s Revenue and Customs) rules to qualify for the lump sum option you must be age 55 or over. Your remaining fund is then used to generate an income without having to purchase an annuity. The 30% pension commencement lump sum is only available once you have spent 5 full consecutive tax years outside of the UK (in terms of tax residence), if you are within the first 5 years, we strongly advise you to limit the pension commencement lump sum to 25%.

2. No Liability to UK Tax on Pension Income

A non UK resident drawing a UK pension remains subject to UK tax on the income, unless he or she resides in a country that has a Double Tax Treaty (DTT) with the UK, which contains an article on pensions that exempts the pension from UK income tax. Transferring under the QROPS provisions ensures that, if tax is due on pension income, it will only be taxable in the country of your residence.

3. No Requirement to Purchase an Annuity

There is no longer a requirement to ever purchase an annuity with either your UK pension or in the event you make a transfer under the QROPS provisions.

Whilst the UK Government changed its pension rules in April 2011 so that you can now delay taking your pension indefinitely, in the event of your death after age 75 you are treated as if you had already taken benefits (whether or not you have actually done so) and there would be a 55% tax charge on the funds paid out to heirs. With a Malta QROPS there is still no need to purchase an annuity, however you must start to draw an income from age 70. The Pension commencement Lump Sum must be taken by this age or the option to take it after this age is lost.

4. Secure Your UK Pension Pot

Some defined benefit schemes in the UK are in deficit. Since the deficit forms part of the balance sheet of the company, this can present a huge risk to your pension fund. Transferring your UK benefits under the QROPS provisions could enable you to have full control of these funds without worrying about the financial situation of your previous employer.

5. Ability to Leave Remaining Fund to Heirs

Standard UK pension legislation significantly restricts the member’s ability to leave the pension fund to their heirs on death, except if death occurs before age 75 and no benefits have been paid to the member. Otherwise if a member has started to draw benefits prior to age 75, the remaining fund can still be paid as a lump sum to heirs, but less a tax charge equal to 55% of the lump sum (increased in April 2011 from 35%). If the member dies after age 75, then the tax charge remains at 55% (reduced in April 2011 from 82%) whether or not the member has received any benefits.

A transfer under the QROPS provisions will allow the member to leave lump sums without deduction of tax to heirs as can be seen more easily from the table below.

UK Pension

Age	Benefits from Pension	Tax On Death
55+	PCLS	55%
55+	Income*	55%
55+	PCLS & Income**	55%
55+	No PCLS, No Income***	0%
75+	PCLS, Income or nothing	55%

QROPS – Malta

Age	Benefits from Pension	Tax On Death
55+	PCLS	0%
55+	Income*	0%
55+	PCLS & Income**	0%
55+	No PCLS, No Income***	0%
75+	PCLS, Income or nothing	0%

PCLS – (Pension Commencement Lump Sum)

This table is based on the aim of paying out the remainder of the pension fund as a lump sum death benefit. There may however be other options than providing a lump sum death benefit.
*This is based on the remaining lump sum being paid out as a death benefit. A spouse could transfer the pension into their name and continue the income drawdown.
**There is an option of phased drawdown where you could take part of your PCLS allowance and part income. The remaining portion of the fund that you have not taken the PCLS or income from could continue to be paid out with no tax up to the age of 75.
***There will be no tax up to the age of 75 if you have not taken any benefits from your plan.

6. Currency

A standard UK pension will usually only be invested and pay benefits in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in converting the pension payments to the currency of their country of residence.

A transfer under the QROPS provisions means that the pension payments can be made in the local currency, thus potentially eliminating exchange rate risk

7. Lifetime Allowance Charge (LTA)

This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1.5m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement at any time when there is a “benefit crystallisation event” that exceeds the LTA. A benefit crystallisation event is any event which results in benefits being paid to, or on behalf of, the member and so includes transfer values paid to another pension scheme, as well as retirement benefits.

The UK Government have advised that the LTA will be reduced to £1.25m from 6 April 2014. (This was reduced in 2012 from £1.8m to £1.5m).

There is no LTA within a QROPS so transferring larger plans to a QROPS may not be caught in this reduction in the future. Careful planning will be needed with your adviser if you are close to the limit in the UK.

Disadvantages

1. Charges

If you have a pension(s) with a combined transfer value of less than £50,000 then the charges may be prohibitive.

2. Loss of Protected Rights

A transfer under the QROPS provisions may result in the loss of certain protected rights, including Guaranteed Annuity Rates, Guaranteed Minimum Pension, a protected enhanced lump sum, or rights accrued under a defined benefit scheme. (These are shown in the section “Analysis of Your Existing Pensions”).

3. Returning to the UK

If you return to the UK, then the QROPS administrator will have to report this ‘event to HMRC and the pension scheme will become subject to UK pension regulations again.

If it is your intention to return to the UK in the near future then a transfer under the QROPS provisions is usually inappropriate.

The Spectrum IFA Group attends the Fund Forum International in Monaco

By Spectrum IFA
This article is published on: 27th June 2014

Since its launch in 1989, FundForum International has grown in tandem with the fund management industry on its journey from small regional performers to dynamic global industry. FundForum International has built up a formidable reputation as the world’s leading asset management event for both cross-border and boutique players, bringing all the top performers, global leaders and industry trailblazers together every year to discuss the most pressing issues concerning their market. It offers delegates an unsurpassed level of networking with the most well-respected industry heavyweights from across the globe.

Michael Lodhi and Peter Brooke from The Spectrum IFA Group attended numerous key note speaker sessions. Commenting on this recent event, Peter Brooke says “Keeping a close eye on the global fund management market is vital for Spectrum and in turn our clients. This forum allows us to talk to a wide variety of funds managers and gain further insight into their strategies. This year the emerging markets, frontier investments and especially Africa got a lot of attention.”

This year’s conference also had a more positive slant to it than previous post crisis years The main issues are no longer the market crisis, but how the turbulence changed regulations for the industry. In his opening comments Tom Brown, Global Head of Investment Management at KPMG, said “The industry is in good shape. Investors are investing. The markets and the economies seem to be growing. And asset-management businesses are feeling optimistic and positive about the future.”

There was still very much a focus on how we as an industry (advisers and fund managers alike) need to engage with our customers to help them invest for their long term financial health. Demographics aren’t changing, we live longer but save little and won’t be able to rely on government. This is a major issue for many millions of us. Fortunately this is also a big opportunity for high quality companies to work closer with their clients to fill this enormous gap

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Pilot Loss of License and Loss of Training Expenses Insurance

By Chris Burke
This article is published on: 26th June 2014

Aircrew undergo many years of hard work at substantial expense to attain their aviation license. However, a commercial pilot’s career and income are always at risk should they suffer serious injury or deterioration in health.

Pilots Loss of License Insurance provides financial support should your aviation career end abruptly; it provides stability while you retrain for a new career. Policies are available on an individual basis should your employer not provide it; similarly members can ‘top up’ their coverage in addition to their company’s existing group policy.

Loss of license insurance is specifically designed for pilots. As such, it negates many of the associated limitations of traditional group insurance products. For instance permanent health and critical illness insurance policies may provide limited cover and significantly reduced benefits in the instance of losing your license.

Who can we insure?

We can cover any individual commercial, fixed rotary or wing pilots including flight instructors, who hold a current license and who are gainfully employed, and actively at work.

Alternatively, if you’re interested in a group policy, please email us directly at chris.burke@spectrum-ifa.com

Key benefits

Lump sum payment
Monthly temporary benefit option
Continuous coverage
Full psychological illness cover option available
Market leading cover for alcohol and drug related illnesses
No extra charge for rotor-wing pilots
Worldwide cover

I have worked extensively with aviation companies and individuals alike, please do not hesitate to contact me with any questions.

Click here for a quote on Pilots Loss of License Insurance

Spectrum crosses the finish line with Le Tour de Finance

By Spectrum IFA
This article is published on: 23rd June 2014

The recent Tour de Finance has come to a triumphant conclusion. The latest tour covered nine locations throughout France following other events in Spain and Italy earlier in the year.

The events are a chance for expats to gather in an informal setting to listen to a wide range of financial experts discussing various topics relevant to living overseas as an expat. The sessions are relaxed and are a great chance for expats to meet other like minder people and to also get those valuable questions answer relating to financial issues as an expat.

Le Tour brings together experts covering areas such as QROPS, Taxation, Wealth Management and Investments, together with Currency Transactions, Banking and Health Care Provision.

Le Tour de Finance will be back in the autumn, so if you’d like more information on the future locations please contact us via the form below.

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For more information on Le Tour de Finance, please complete the enquiry form below.

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Spectrum on Talk Radio Europe

By Charles Hutchinson
This article is published on: 20th June 2014

Spectrum Adviser Charles Hutchinson was interviewed for Talk Radio Europe

You can listen to the whole interview by clicking on the link below

The Spectrum IFA Group at TED Event

By Victoria Lewis
This article is published on: 17th June 2014

Victoria Lewis, one of Spectrum’s advisers in the South of France and Paris, was recently nominated to participate at a TED event (www.ted.com) in Grenoble.

“It was an honor and a privilege to be nominated as a Speaker by TED, especially when I discovered one of the other speakers was a Nobel Prize winner! I was asked to speak about the global pension situation and the problems faced today by those people wishing to retire early.”

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“TED imposes strict rules on the talk format and each presenter must speaker for 18 minutes. There was an international audience of 300 people, many of whom were executives from international companies, entrepreneurs, scientists and university undergraduates. Fortunately, there was time during the event to answer specific questions from the audience and it was clear that most people had a real interest in improving their financial well-being. “

What’s TED?

TED is a nonprofit organization devoted to ‘Ideas Worth Spreading’. Started as a four-day conference in California 25 years ago, TED has grown to support world-changing ideas. The annual TED Conference invites the world’s leading thinkers and doers to speak and their talks are then made available, free, at TED.com. TED speakers have included Bill Gates, Al Gore, Jane Goodall, Sir Richard Branson, Philippe Starck, and UK Prime Minister Gordon Brown. TEDTalks are posted daily at TED.com.

Le Tour de Finance 2nd leg in France

By Spectrum IFA
This article is published on: 13th June 2014

Le Tour de Finance is getting ready for its second leg starting on 17^th June in Saint Loup sur Thouet. The Tour then weaves its way through Vannes le Port, Tours and finishes in Dijon on 20^th June.

The first leg of the tour was a great success, with large numbers attending all the events with fact filled sessions followed by an opportunity for an informal questions and answers session over refreshments and a buffet.

The relaxed and open forums are a chance to expand your knowledge of personal finance as a resident in France. The panel of speakers are experts in their respective fields and are there to answer questions you may have about strengthening your personal financial situation while a resident in France.

The Spectrum IFA Group is a European leader in professional personal financial advice and will be covering subjects such as; QROPS, pensions, tax advice, investments and wealth management, healthcare, and mortgages.

Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered, plus mingle in a pleasant atmosphere with other expat residents whilst enjoying a complimentary buffet lunch. The free sessions commence at 10.00 and will finish at 14.00.

Le Tour de Finance 2014 second leg:

17th June – Chateau Saint Loup, Saint Loup sur Thouet, 79600
18th June – Mercure Vannes le Port, 56000
19th June – Chateau de Beaulieu, Tours, 37000
20th June – La Cloche Hotel, 14 place Darcy, Dijon, 21025

For further information and to book your place please visit: https://spectrum-ifa.com/seminars/

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QROPS and expats living in France

By Spectrum IFA
This article is published on: 12th June 2014

As part of the March 2014 budget substantial changes to UK pension legislation have been proposed by the UK government, and here our Financial Expert Steven Grover a Partner with the Spectrum IFA Group will guide you through these proposals and what consequences they could have for expats.

So what are the changes that have been proposed and which of these changes have already been adopted ? The majority of the proposed changes are already effective as of the 27 March 2014 which include the following:

New higher income drawdown limits – Drawdown investors have a yearly limit to the income they can draw which is from zero up to the maximum, The maximum amount has increased by 25% (from 120% to 150% of a broadly equivalent annuity) So for instance, an investor aged 65 with a £100,000 pension starting drawdown before these changes could draw a maximum income of £7,080 a year. However if they start from 27 March 2014 this will rise to £8,850.

Flexible drawdown made more accessible – Flexible drawdown allows investors to make uncapped, unlimited withdrawals from their pensions. There are, however, strict qualifying criteria. The main one is that you must already have a secure pension income of at least £12,000 (prior to £20,000 before).

However the £12k income must be “relevant income” so only the following will count:

State Pension, Scheme Pension (so a final salary pension which is fixed), Lifetime annuities, Overseas Pensions (but only overseas state pension or final salary), Pension income provided by the Financial Assistance scheme.

And the following income would not be included as they can change, capital can be spent, investments sold, drawdown income can finish – Rental income, Dividends, Interest, Drawdown pension income, QROPS income, Part time salary.

More flexibility for investors with pension small pots – Now investors aged 60 or over with total pension savings under £30,000 (formally £18,000) will be allowed to draw them as a lump sum. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), and the remaining amount will then be taxed as income. This can only be done once. Investors with individual personal pension pots smaller than £10,000 (formally £2,000, twice) will be allowed to draw them as a lump sum from age 60, which will be taxed as above but can only be done three times.

The following changes have however not come into force and are still in consultation:

Pension Investors will be able to take the whole of their pension as a lump sum (Potentially effective from April 2015) – Currently most investors aged 55 or over can take up to 25% of their pension as tax-free cash (in the UK but this may not be the case for French tax residents), and a taxable income from the rest. There are, however, rules that determine the maximum income most people can draw each year. These restrictions will be removed in April 2015 so pension investors will be able to take the whole of their pension as a lump sum if they so wish, subject to consultation. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), whilst the rest will be taxed as income. Should this come to fruition, it takes away one of the most cited objections to funding a pension.

Lump Sum Death Benefits – The 55% tax charge on certain lump sum death benefits will be reviewed. The Government believes that a flat rate of 55% will be too high, and will engage with stakeholders to review the rules to ensure that taxation of pensions on death is fair under the new system.

QUESTIONS & ANSWERS

What exactly is the government consulting on?

The government is consulting on “Freedom and choice in pensions”. The consultation relates to whether the proposed changes will happen and how. The main points which affect investors with private pensions are:

Ability to take unlimited income from pensions (from age 55, rising to 57 in 2028). The first 25% remains tax free, whilst the rest is taxed as income.
Review of the 55% tax charge on death in drawdown/post 75.
Review of the tax rules that prevent individuals aged 75+ from claiming pension tax relief.
Increase in minimum pension age from 55 to 57 from 2028 and further rises after that so it remains 10 years below state pension age.
A consumer’s right to financial guidance at retirement. • Potential use of (yet to be developed) pension products for social care.

What is the timetable of the consultation?

The consultation will close on 11 June 2014 and the government aims to confirm any changes by 22 July 2014, these changes will potentially be effective from April 2015.

Can I take my pension as a lump sum?

Potentially, yes you could. However it will depend on your individual circumstances and the decision made after the consolation period has closed.

From 27 March 2014 some investors aged 60 or over will be able to take their pension as a lump sum if:

▸ Their total pension savings are under £30,000 (only once), or

▸ They have individual personal pension pots smaller than £10,000(maximum three times)

From 27 March 2014 some investors aged 55 or over will be able to take unlimited withdrawals from their pension (through flexible drawdown) if they can prove they have a secure pension income of at least £12,000 a year (including state pension), instead of 20,000 a year.
From April 2015, if the changes above are confirmed after the consultation, everyone will be able to take their pensions as a lump sum.

What happens to investors already in drawdown?

Investors who started income drawdown before 27 March 2014 will remain on their current maximum income until their next annual review date. If the three yearly GAD calculation is due at that review, their maximum income will be recalculated based on the current fund value and that month’s GAD rate. They will then be eligible to take 150% of the new GAD limit. Clients not due a GAD calculation will simply move from 120% to 150% of their existing GAD rate at their next annual review. These same existing drawdown clients may potentially have their maximum income restrictions removed completely in April 2015 if the proposed changes are agreed following consultation.

What happens to investors who have already bought an annuity?

An annuity cannot usually be cancelled once set up, so you are unlikely to have any further options. However, you typically have 30 days to cancel (cancellation period). The start date of the cancellation period will depend on the terms set out by your annuity provider. Some providers are extending their cancellation period.

So with all of the above changes potentially changing drastically changing the UK pension in Industry, will a QROPS now be less relevant to Expats living in France?

First of all what is a QROPS?

QROPS (Qualifying Recognised Overseas Pension Scheme) was brought about following changes to UK pension legislation on April 5, 2006. This scheme has been specifically designed to enable non-UK resident individuals who have accrued pension benefits in the UK, to transfer these out once they have left the UK. Provided that the UK Registered Pension Scheme and the QROPS provider both have the appropriate transfer authority, individuals who leave the UK and establish a QROPS are able to request a transfer of their UK benefits as long as they can provide evidence they are no longer a UK resident.

Due to the fact that this scheme is an international contract, future benefit payments can potentially be received without deduction of UK tax, however individuals will be responsible for declaring the income in their own country of residence. So those who have moved to France to retire or are thinking about moving to France in the future, and have private or work pension benefits that would have normally been left behind in the UK can benefit from a QROPS Transfer.

What are the key benefits of a QROPS over leaving the pension in the UK?

Pension Commencement Lump Sum – With a QROPS approved scheme the amount of PCLS available at retirement can be up to 30 percent, compared to the 25 percent allowed with a UK pension however this does depend on which one of the approved jurisdictions is used.

Inheritance tax planning – Most people would like to think that, upon their death as much of their assets as possible would be passed on to their heirs. It is a complex issue, however, by transferring to a QROPS the taxation of pension benefits on death can be much less punitive. With the current UK pension rules a UK pension scheme could be a taxed up to 55 percent of the fund value before being passed on. By bringing the pension out of the UK and using a QROPS approved scheme, this tax liability can be greatly reduced or in some cases even wiped out completely.

Age benefits can be taken – Some QROPS jurisdictions will allow you to start taking benefits from your pension at the age of 50, as apposed to 55 years old in the UK.

Currency risk – This is a very important consideration for expats who have retired in France with UK pensions that will pay their pension benefit in sterling, because this means they not only run an exchange rate risk but also will incur charges for converting their pension benefit payments into Euros. By putting your pension into a QROPS you can receive your pension benefit payments in Euro’s and therefore eliminate any exchange rate risk, currency conversion charges and have peace of mind that the amount of income you receive each month will be the same.

Investment choice – By moving an arrangement out of the UK there can be a much wider choice of investments available to the pension fund, with a more global focus which is particularly important in the current market conditions as some existing pension schemes can even be limited to just UK investments.

Is a QROPS still relevant to expat’s in France?

This will unsurprisingly depend on your individual circumstances, but some of the changes in the UK like increased drawdown limits have already been adopted by many QROPS jurisdictions. And when you take into account the other advantages mentioned above, using a QROPS still has a many advantages over leaving the pension in the UK. However as part of the proposed changes are subject to UK Government consultation period, for some individuals it might be the case that it is better to wait until these findings have been disclosed.

This information is only provided as a guide and is based on our understanding of current QROPS regulations, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different. If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)687980941, e-mail steven.grover@spectrum-ifa.com

More pain and no gain from interest rates

By Spectrum IFA
This article is published on: 10th June 2014

The European Central Bank made headline news again at the beginning of June, as it reduced its main interest rate from 0.25% to 0.15% and lowered its deposit rate into negative territory from 0% to -0.1%.

The reduction in the interest rate makes it less expensive for other banks to borrow from the ECB and ‘in theory’ this should result in credit flowing out to the wider Eurozone community. At the same time, the negative deposit rate means that the ECB will charge banks for keeping their excess liquidity on deposit with it. The thinking is that this should discourage the banks from making the deposits and instead, make the money available for lending to households and business thus, encouraging growth.

These measures are part of a package that also aims to increase the rate of inflation in the Eurozone, which continues to fall, as demonstrated by the change in the Harmonised Index of Consumer Prices for May, when the annual rate of inflation fell from 0.7% to 0.5%. However, there are many who think that the current measures are insufficient to turn the trend from continuing towards deflation and feel that more aggressive action should have been taken by the ECB, including an expansion of Quantitative Easing.

What does this mean for savers? There is only one answer and that is “bad news”. Even if the banks do start to lend more money into the wider community, since they can borrow from the ECB at 0.15% to do this, why would they borrow from the public (i.e. the savers) at a higher rate?

We have been living in a very low interest environment for several years now, although this is the first time that the Eurozone has gone into negative territory in ‘nominal’ terms. In ‘real’ terms (i.e. taking into account inflation), we have already experienced negative returns from bank deposits and even the most cautious of investors are now prepared to look at alternatives.

One such alternative is a particular fund in which many of our clients have already invested. Despite the fact that the fund is conservatively managed, over the last four years to the end of May, the Sterling share class has still been able to grow by more than 36% and the Euro share class by 30%. After taking into account annual management charges on the fund, the three year annualised return is around 7% for Sterling and around 5.5% for Euro. A growth fund is also available for those investors who wish to take more risk and USD share classes are available for both the cautious and the growth funds.

The funds are part of those of a large insurance company, which has a history going back for more than 160 years. The company is well capitalised and so clients feel comforted by the safety of investing with such a solid company.

One of the unique features of the funds is the delivery of a smoothed investment return. On a daily basis, each of the funds grows in line with an expected growth rate, which is the rate of return that the company expects the assets in which the funds are invested to earn over the long-term. This approach aims to smooth out the usual peaks and troughs of investment markets and so is particularly beneficial to investors seeking an income from their capital.

It is a well-known regulatory requirement for product providers and investment managers to tell investors that “past investment performance is not a guarantee of future performance”. Whilst this is true, in reality it is only by looking at the past investment performance of a fund that one can really judge the skill of the fund manager. This is not just about how good the manager is at picking stocks – but more importantly – about how risk is managed, particularly through market downturns. Happily, when I am discussing the above funds with clients, I am able to demonstrate the skill of this insurance company by showing a sixty-year history of positive investment returns on an annualised basis over 8, 9 and 10 year periods. This is another reason why cautious investors – who would have previously only ever placed their capital on bank deposit – are very comfortable about switching to this alternative choice.

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 investment of financial assets or on the mitigation of taxes.