Author: Stuart Yeomans

The Brexit has happened…….so what’s next?

brexit

 

 

 

 

 

 

 

 

 

I personally followed the media trail on the run up to the Brexit referendum and many fingers pointed to a stay vote. Even Nigel Farage hinted that he felt the campaign to leave was potentially lost and to our surprise it has gone the other way with a slight majority of 52% to 48%. (to be updated once final results are in)

Now that the Brexit has happened, people need to consider two main points:

  1. What will the UK do next to curtail volatility and widespread issues?
  2. When should you take advantage of the current drops in the markets?

There is a simple answer to question one and I believe that the UK would opt to join the EFTA which stands for the European Free Trade Association. Current members of this are Switzerland, Liechtenstein, Norway and Iceland and it was formed in 1960. This will be a solid interim strategy or possibly even permanent strategy for the UK. It still offers freedom of movement and a number of other benefits too.

The UK were a member of the EFTA between 1960 – 1973.

So what is the EFTA and what will it offer as a solution to the Brexit situation.

To participate in the EU’s single market, Iceland, Liechtenstein and Norway are party to the Agreement on a European Economic Area (EEA), with compliance regulated by the EFTA Surveillance Authority and the EFTA court. Switzerland instead has a set of bilateral agreements with the EU.

Farringdon Group sold out of most equities a few weeks back and this has proved to be the right decision for our clients. We just need to decide as to exactly when we buy back in!

So to answer point two, you should be looking to play this by ear and ascertain when the current drops have bottomed out. It is difficult to predict exactly when, but you should look to enter on the date of the EFTA announcement.

If the UK do not enter the EFTA, it may be wise to hold cash until a certain time that a clearer picture presents itself.

If we do enter the EFTA……..when?

Well honestly speaking the government should have a battle plan in place and I would be surprised if we do not see this before the end of next week……..but lets see!

Thanks for reading

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

 

QROPS Factsheet

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QROPS stands for Qualifying Recognised Overseas Pension Scheme. These are non-UK schemes that have been declared to HMRC which then fit the QROPS criteria and should be recognised as such.

Living offshore and transferring a UK pension offshore can possibly help an individual to avoid paying higher tax rates than if they stayed or kept their pension in the UK.

On the 6th April 2006 also known as A-Day, the British government bought in sweeping changes to the pension system affecting anyone with a UK Personal or Corporate Pension.

The idea was to simplify the hugely complex system for UK personal and corporate pensions and to relax the rules governing how much and how we pay money into pensions schemes. The new rules apply to all personal and employer paid pensions, bringing them all into line for the first time.

Pension A-Day changed the way that you can draw your pension and the date at which you can receive the benefits forever, below you will see the fundamental differences between UK resident pensions and a QROPS.

UK Resident Pension

  • You are now able to draw part of your pension from a company scheme when you are still working full or part time for the same employer.
  • UK Residents – Many pension schemes now offer pension commencement lump sum, meaning you can take up to a quarter of your pension as long as it is less than 25% of your lifetime allowance. This was originally £1.8 million up until 2012, lowered to £1 million on 6 April in 2016.
  • From 2010 the minimum age for receiving your pension increased from 50 to 55.

In a case when a non-UK resident has a UK source of income or receives payment from a UK Registered Pension this person is obliged to pay UK tax at marginal rate, unless there is a Double Tax Agreement with their country of tax residence and the UK offers exemption from UK tax on such income.

QROPS

As mentioned earlier QROPS offers an opportunity to improve an individual’s tax position on their pension. I would like to now share with you who is eligible to apply for QROPS and what kind of benefits you may gain.

  1. Any person who is planning or already retiring overseas and becoming resident in a foreign jurisdiction or country for five years or more.
  2. Furthermore, in order to get benefits from QROPS, an individual does not have to leave the UK forever. An individual can continue his/her visits to UK, but must stay as a non-tax UK resident.

Below are the main fundamental points about QROPS:

  • You can consolidate all of your pensions into the same account and reduce your fees
  • Currently you are able to take up to 30% commencement lump sum in Gibraltar & Isle of Man at aged 55 and currently 25% in Malta.

However, if the QROPS contains UK tax relieved pensions funds and the member is UK tax resident, or has been UK tax resident at any time inside the previous five full complete and consecutive UK tax years, the maximum lump sum is limited to 25%

  • You can potentially draw down up to 150% of GAD each year, depending on your jurisdiction – Or flexible drawdown in Malta
  • A QROPS member is not subject to death tax if he dies after the age of 75 and has lived out of the UK for 5 full tax years, while UK resident is liable to a flat rate tax charge of 45%.
  • You can possibly withdraw monies tax free from a QROPS depending on jurisdiction or at a lower tax rate.
  • You have access to thousands of investments, as opposed to a limited number at present
  • You have complete control with regards to currency

There are various QROPS jurisdictions for investors and the best location for transfers depends on the result each individual is looking for. Most common jurisdictions for QROPS are Malta, Gibraltar and Isle of Man.

The fiscal laws vary from one jurisdiction to another, therefore the key point in choosing jurisdiction is the future location for retirement.

I would like now to compare the key features of these jurisdictions.

  Gibraltar Malta Isle of Man
Investments Flexible Flexible Flexible
Retirement Age 55-75 55-75 55-75
Pension Commencement Lump Sum 30% 25% 30%
Income Basis 150% of UK GAD Rates Flexi-Access Drawdown 150% of UK GAD Rates
Income Tax 2.5% Up to 35% 20%
Full Double Taxation Agreements 0 60+ 9 in force
Death Benefits Pre- age 75 100% lump sum or dependent’s pension 100% lump sum or dependent’s pension 100% lump sum or dependent’s pension
Death Benefits Postage 75 100% lump sum or dependent’s pension 100% lump sum or dependent’s pension 100% lump sum or dependent’s pension

As you can see, Malta relies heavily on its extensive range of Double Tax Agreements (a full list can be obtained from the Maltese Financial Services Authorities. http://www.mfsa.com.mt/pages/viewcontent.aspx?id=196.

Unlike Malta, Gibraltar does not have an extensive range of Double Taxation Agreement and instead applies a flat income tax of 2.5% on income payments from a QROPS. The Isle of Man is similar to Malta as the income tax rate is dependent on whether there is a DTA in place with the country the individual is tax resident in when he draws an income.

As it can be observed QROPS is a complex system where regulations vary based on the jurisdictions, however circumstances change and you are able to switch to a more suitable jurisdiction if required. Furthermore, not everyone will take advantage from transferring their pension funds overseas.

Farringdon Group and their team of expert advisors can assist in pension valuations and whether it is beneficial for you to move a pension offshore and we are always happy to discuss this with you further.

 If you need any assistance please contact us at syeomans@farringdongroup.com

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

 

Sterling Volatility

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The pound fell to an eight-week low today while the cost of hedging against big swings in its exchange rate against the euro over the coming month hit a record high, this happens with 48 hours remaining on Britain voting whether to remain in the European Union.

Betting markets suggest the possibility of the option to remain in the EU is high but some recent polls have shown a lead in the Brexit option, causing anxiety amongst investors.

The “volatility index” – a measure of investors’ uncertainty – has hit levels last seen in the 2008 financial crisis.

The pound was down 0.2% against the dollar at $1.4226. Against the euro, sterling was down 0.6% at €1.2605 and weakened by 1 % against the Japanese yen to just over 151.

A senior analyst at IronFX Global, Charalambos Pissouros expected that incoming polls would move the pound more aggressively than before. If the new polls continue to show a tight race between the two campaigns as the voting day approaches, resulting in even more uncertainty and thus, volatility in sterling is likely to heighten further.

Hedge funds and asset managers are increasingly seeking to protect their exposure to UK markets through derivatives.

Data suggests speculators are adding to bets against the pound with short positions at their highest in at least three years.

A lot of analysts reckon a vote to leave the EU on June 23 would jolt Britain’s economy and send sterling tumbling by 15-20%, while a vote to stay would be likely to drive the currency sharply higher.

The Brexit issue has dominated the market since late last year, driving a decline of more than 10% in sterling on a trade-weighted basis between the middle of November and the middle of April.

The equivalent sterling / dollar one-month implied volatility rocketed to 28.15 percent, close to its 2008 peak of around 29 percent.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

National Insurance Factsheet for UK passport holders

stuart yeomans - national insurance

 

Fail to pay enough National Insurance before you retire and you could miss out on the full state pension. But does making up your missed payments make financial sense?

What is National Insurance and what does it pay for?

National Insurance is not strictly a tax and while it may certainly feel that way, its aim is to benefit those who contribute to it.

The main areas funded by National Insurance contributions are the NHS, unemployment benefits, sickness and disability allowances and the state pension.

Aside from the NHS, most of these benefits are in some way linked to your National Insurance contributions. However, only your state pension allowance and entitlement to bereavement benefits are impacted when you top up; your entitlement to other benefits will not change.

How to make National Insurance count

In order to claim the full basic state pension you will need to have paid sufficient National Insurance for a certain number of years.

Each year that counts towards your state pension entitlement is called a qualifying year. The number of qualifying years you need to build up to qualify for the full basic state pension depends when you will start to claim it.

  • If you will retire after 6th April 2010, you will only need 35 years of National Insurance contributions – both men and women – to be entitled to the full state pension.

For the 2016/17 tax year, you will need to earn £8,060 worth of income to pay enough National Insurance for it to count as a qualifying year.

If you fail to accrue the full number of qualifying years you need, you will not receive the full basic state pension but a proportion based on your National Insurance contributions.

For example, if you have made 20 years contributions you’ll be paid 20/35 of the basic pension.

Do you have to top up?

National Insurance itself is compulsory for most people and is usually deducted automatically from your salary, but not if you are offshore or living abroad.

However, if you get a letter from HMRC asking you to make up your National Insurance contributions you are not under any obligation to send off a cheque.

Instead this is more an invitation to top up your NI contributions for the previous tax year (letters sent out in 2016/17 will refer to the 2015/16 tax year) so that it counts as a qualifying year towards your pension entitlement.

Should you top up?

If your National Insurance contributions do not meet your annual threshold (this can vary depending on the type of NI you pay) HMRC will write to you between September and January to ask if you would like to make up the difference if you live in the UK, if not you may not be aware, please read more !

Whether you decide to pay to top up your National Insurance contributions will entirely depend on your circumstances.

Here are some of the main points to consider:

Will you reach your target?

How close you are to making 35 years of qualifying National Insurance contributions should have a big influence on whether you opt to top up or not.

If you are in your 20s or 30s for example and expect to be working for the next 20-30 years you may decide your money is better used elsewhere.

Equally, if you’ve already contributed 35 full years of National Insurance or are very close, then you may feel that there is no benefit to topping up.

However, if you are nearing retirement and missing a number of year’s contributions, you may feel that it’s worth your while.

Do you need the money now?

Whether you can realistically afford the payment is another important consideration when deciding whether to top up your National Insurance contributions.

The amount you might be asked to pay can vary hugely depending on your income and the type of National Insurance you pay and can easily run into the thousands of pounds.

Before you send this money off to HMRC you should consider whether paying will leave you hard up, or if the money might be better used to now, be that to pay off debts or add to your savings.

Will you get a better return in a private pension?

Rather than topping up your National Insurance contributions you could opt to invest the money in a private pension instead; especially as the state pension may be so minimal that you’ll need to supplement your retirement income anyhow.

Essentially this would mean sacrificing your missing year’s National Insurance entitlement in exchange for investment in your private pension.

If you are considering this option you will need to weigh up the impact on your state pension:

  • Will doing this mean you don’t build up enough years of NI contributions to receive the full entitlement?
  • Will these losses will be offset by the money you will get back through your private pension?

It is always worth consulting an Independent Financial Advisor if you need help.

* Since 1945 state pension has grown to £155.65 per week, to get this annuity from a private pension scheme would mean contributions in excess of £275,000……is it worth you getting up to date for as little as £2.80 per week??, we know it’s not a huge amount of money, but you are entitled to it at retirement, so this can be a little added retirement money you may have thought you were not entitled to while offshore or not living in the UK.

Will there be a state pension in 20-30-40 years’ time?

Yes ! Little has changed since 1945 and no UK resident will ever opt to vote a government in to power who wants the State Pension gone….They’ve been speculating this for years !!

As the UK population continues to age many people believe that in the long run the state pension will simply become too big a burden to maintain and that people will eventually be asked to fund their own retirement.

While this is essentially all speculation, if you’re at the start of your working life you may decide that paying your outstanding National Insurance contributions will be wasted and better placed in a private pension plan.

Can I still pay National Insurance as an expat offshore?

Yes, you can even back date it 6 years and get your NI up to date with one payment or via direct debit. Currently as an expat you are classed as a Class 2 tax payer and the cost of keeping you NI up to date is £2.80 per week.

If you have been out of the UK for a number of years this may not affect the fact that you can have FULL UK state pension, as long as you have paid NI for a total of 35 years between the ages of 16-68 you are entitled to this in full.

Seek advice

It is likely that a number of different factors will influence your decision as to whether to top up your National Insurance contributions.

To get an idea how much you will receive in retirement from the state pension or to find out how to do the assessment please request telephone call from us here at Farringdon Group or contact me on syeomans@farringdongroup.com.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

A Guide to Retirement Planning

Stuart Yeomans - Retirement

Whether it’s around the corner, several years or decades away, financially secured retirement requires planning. In order to plan retirement a person should be able to generate an income for life. It is very important to make sure this income never runs out no matter how long an individual lives. It is also vital to ensure that the income is inflation proofed.

Impact of Inflation

Inflation is a trend of increasing prices from one year to the next, consequently, the purchasing power of currency is falling. The rate of inflation represents the real value of your pension and therefore it is necessary to know this in order to have a guide as to the investment return rate to maintain your standard of living expected in retirement.  Inflation can impact a person’s retirement income more than anything else.

A British National retiring at 60 today will be expected to live for 18 years on average after retirement. It is entirely possible for a person retiring at 60 today to live for 40 or even 50 years after retirement. If an individual had set aside a sufficient pension to pay them $5,000 per month at retirement we might feel they have a well-financed retirement. However, without an increase for inflation and an average inflation rate of just 3%, this $5,000 will be worth $3,800 in 10 years, $2800 in 20 years and just $2,067 in 30 years. Considering this, the return from investment should be at least equal to or greater than inflation rate.

Annuity

An annuity is a regular income guaranteed for life. You “buy” an annuity with your pension fund after retirement. Basically you exchange the sum you’ve saved for an annual income.

If you have an occupational pension your employers will normally arrange your annuity when you come to retire. You don’t have any choice in the matter.

If you have a personal pension, as retirement approaches, your pension provider will contact you with an offer of an annuity

When you buy an annuity you lose your pension fund forever by swapping it for the agreed regular income.  There’s no going back and your loved ones do not get whatever’s left over when you die. The pension you saved for years is not yours anymore.

Annuities also have very poor rates. As the insurance company must insure your income for life they generally aim at very low risk investments. A typical annuity rate for a 60 year old is 4%. For example, £100,000 into an annuity will pay an income of £4000 per year with loss of the entire fund on death.

Frozen Pension

In the modern work environment people will tend to move across many different employers. As a result most people will tend to have more than one pension. These pensions that are not being contributed to are referred to as ‘frozen pensions’. These are pensions which are no longer receiving funds from either the member or the employer.

Farringdon Group’s retirement financial planning specialists can help you choose from the full spectrum of both offshore and onshore private pension plans to help you find the best of for you and we can assist to unlock these frozen pension to get this investment working for you and the future.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

Education Planning: Investing in your child’s future

Stuart Yeomans - Child Education

Many expatriate parents feel comfortable placing their children at international schools rather than at local schools. The benefits of a private international school is the peace of mind that their children are being educated to an international standard that applies back home too. Some expatriates are fortunate enough to be offered contracts with school fees contributed by their employer, but for the many who don’t it is a case of having to put money aside to give their children the best possible future.

Next to buying a home, a college education might be the biggest purchase a person makes after buying a home. For example, average tuition costs in the UK is around GBP 3.500-20.000, in Canada prices vary between CAD 15.000-CAD40.000, while in the US it is between USD 20.000-USD 50.000.  As it can be observed, where parents wish to educate their children will dictate the cost. The cost of educating a child in the US is far greater than Canada or United Kingdom.

Education costs have significantly increased over the last decade and according to the College Board these costs will keep climbing.

Of course, no one can predict the cost of education at colleges in 5, 10 or more years. However, following historical trends annual price growth in the range of 4-7% will most certainly continue.

Therefore, in order to ensure that children get the best education that they deserve, early financial planning is important.

Setting up an Educational Plan early gives your money more time to grow and help you benefit from the power of compounding.

Below is a hypothetical example of a Standard Education Fee Planning if you save GBP 1000 over a period of time:

Time Total Savings 2% growth p.a. 5% growth p.a. 8% growth p.a.
10 Years GBP 120000 GBP 132719 GBP 155282 GBP 182946
15 Years GBP 150000 GBP 209713 GBP 267288 GBP 346038
20 Years GBP 240000 GBP 294796 GBP 411033 GBP 589020

As we can see, even a modest monthly investment can grow to significant university fund, by the time your child needs it.

Our experienced consultants offer expert advice on how to plan for education costs and also how to prioritize your investment money if time and/or funds are limited.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia