Autumn Tour de Finance seminars
At this time of the year, it’s pretty difficult for anyone to think about financial planning. The sun is shining, families are visiting, or perhaps we are taking our own vacations somewhere else. Tax, investment markets, pensions and inheritance planning are usually the last things that people want to think about, but this year is proving to be a pretty exceptional year.
September brings the rentrée and it’s also a time when reasonable assumptions can usually be made about what might happen in financial markets over the rest of the year -although this year may be a challenge!
There is at least one ‘big political event’ up ahead that might keep the markets guessing and who knows what the outcome of the US Presidential Election will be? Can anyone ever depend again on forecast polls to gain some insight, after the shock result of the EU Referendum?
On the UK, could there also be a General Election? If not this year, next year? Will Theresa May really be able to resist the pressure that is likely to ensue and stay firm to the statement she made in her leadership campaign not to call a snap election?
Brexit is of course a big question – will it happen or not? If so, when? No-one really knows, but in the meantime, markets remain on high alert and sensitive to the potential outcomes of a Brexit.
As a result of Brexit, the Bank of England has drastically cut its forecast for UK growth for 2017. The interest rate has also been cut to a historic low of 0.25% and this may not be the last reduction for this year. Combined with the prospect of an increase in inflation, due to a weaker Sterling, the prospect for any meaningful return on cash has diminished still further. How will this affect you? What will happen if interest rates stay permanently lower and not just for longer?
There are other things that could affect the way that markets perform over the rest of the year and into 2017. What is the prospect for global equity and bond markets? Are we reaching the peak of the current market cycle? Should you be taking short-term ‘protective’ actions to protect your wealth for the long-term? Do you need to take action with your pension funds to make sure these last as long as you do?
Le Tour de Finance
All very interesting questions and fortunately, we are again holding our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”, which is a perfect opportunity for you to discuss some of these questions directly with experts. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- French Tax Issues
- Currency Exchange
The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and so early booking is recommended.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to attend the seminar or would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at email@example.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
One final thing to share with you is the news that our Languedoc team is expanding. Sue Regan has joined us as an adviser and so now we have six advisers covering this region. Sue lives at Cruzy and so is well placed for visiting clients in Narbonne, Beziers and the surrounding areas. She can be contacted directly by telephone on 04 67 24 90 95 or by email at firstname.lastname@example.org. Sue will also be at the Gayda event with Derek, Rob and myself.
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 here
Some alternative BREXIT thoughts and why Italy could be next
The last couple of weeks entertainment have taught me that there are decades when nothing happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views in this E-zine.
I also want to write about why Italy could be next in line. (Any ideas on what to call it, Exaly, ItIt?)
One thing appears to be much clearer to me now and that is that the vote on June 23rd was basically the ordinary people of the UK telling the ‘establishment’ that they have had enough of austerity and want change.
This shouldn’t come as a surprise after 8 years of government and central banks supporting bailed out banks (TARP, LTRO, LTRO2, QE, ZIRP, NIRP to name a few of the easing programmes that have been employed!) allowing huge corporate bonuses to continue, destroying income from savings with low interest rate policies and more austerity/taxes for you and I. Conversely the uber rich and corporates have seen asset price rises, an increase in offshoring and consistent tax breaks. Warren Buffet is quoted as saying that he would be happy to pay higher taxes and cannot understand why he pays a lesser percentage of personal tax than a nurse. It seems that since the financial crisis of 2008 there has been one objective: to save the financial industry at all costs.
With all this in mind is it any wonder that the average working man in Northern England is ‘not’ concerned about the consequences of BREXIT; a possible fall in house prices, a loss of jobs in the City, a 10% fall in share prices. These people are immune to this kind of pain. For this person BREXIT probably seems like a bonus. An opportunity to put a finger up to the establishment and David Cameron who have not protected their interests as they should have.
The working class man from Northern England may be immune to the pain of people who have assets, but financial markets are not, and they have reacted as you would expect. (Admittedly they have rebounded in the last few days). This affects the middle class, who also have assets. Expect more volatility to come.
This could all signify an end to economic policy being controlled by academics and economists.
BREXIT: In two minds
Continue with the status quo; economic tranquility and pushing the economic pain further down the road, in reality to the next generation or, should I be a supporter of BREXIT’s ‘economic’ possibilities and what it could ultimately deliver: higher interest rates, debt defaults, inflation, possible asset price falls (no one really knows what will happen here), higher taxes in the short term, vast privatisation of public assets and reduced benefits, with the aim of normalising world economic affairs through short term pain, long term gain. My problem with BREXIT is that I don’t think that the average man in Northern England who voted out actually understands that this is what it actually signifies and if they did then would they really have voted out?
In the end that decision will be made by the people, but let’s not think it is only isolated to the UK. Donald Trump is making similar inroads into the old industrial heartlands of America. Don’t be surprised to see him as President of the USA later in the year. Marine Le Pen in France and Movimento 5 Stelle in Italy (although they have now come out in support of the EU, but with radically changed policies).
Which brings me nicely onto Italy. I have had the BREXIT conversation with many people since then and I have been surprised to hear the reactions from Italians. I can give 5 cases when each person considered their future better outside the EU. A fascist man running a stabilimento (no surprise there then!); a right leaning hairdresser from Naples, devout catholic and openly critical of the influx of immigrants (in my opinion you could call him racist with some of the views on non Italians); a centre right voting physiotherapist with 3 children and self employed; a self confessed communist psychiatrist (with 3 houses and a house in the centre of Rome paid for by her father); and a cartoon animator, living hand to mouth, who is an open supporter of M5S and a vote to exit from the euro and the EU.
All have their own reasons but essentially the same rationale. When the euro was introduced everything doubled in price and wages halved. They seem to think a vote to leave is a way to turn back the clock. That nostalgic feeling…’taking back control’. We have heard that somewhere before!
The reality is likely to be quite different and would reflect the UK’s immediate future if they do exit from EU (I am still not convinced they will). However, the point is that they all feel let down by the EU and would be better off without it.
So, where does this lead us to. A huge inflection point for Italy will come in October. Renzi has proposed a Constitutional change which will essentially liberate the Government from the current two chamber system and allow one party rule for a 5 year period, in much the same way as the UK and the USA.
If this Referendum should fail to be approved by the people then Renzi has stated that he will step down as Prime Minister.
The problem for Italy is that:
- It will likely return to less than 1% economic growth, and for a country that has hardly grown since the introduction of the Euro in 1999, that would not be good
- Italian banks do not have enough capital to weather a storm of that nature. They are sat on €360 billion of non performing loans (a third of the size of the Italian economy). If Italy voted out of the EU, Banca Italia would have to print that money to re-liquidate the Italians banks and that would lead to some pretty spectacular inflation
- And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space
This is going to be a trying time for Italy, the EU and the UK. I would suggest that this IS the EU’s ‘moment’. If it can survive this then it will pull through, if not then it will fall apart.
So in all this mess and future potential mess what should we be doing with our money. GOLD and the US Dollar. These are things that will weather the storm. How and in what to invest to get best access to these assets is a subject for another time.
Concerns over effect of BREXIT on expat pensions
The decision by UK voters to leave the European Union could have far-reaching consequences for pensioners living abroad.
This is especially the case for those receiving UK state pensions, but who are living in another EU member state.
The main uncertainty is whether state pensions will continue to benefit from annual increases.
As at September 2014 there were 1.24 million people receiving British state pensions but living outside the UK.
Approximately 560,000 expat pensioners live in countries such as Australia, New Zealand, Canada and South Africa, where their state pension is frozen at the amount it was when they left the UK.
Is it going to be the case that British expats living in EU countries such as France or Spain will find themselves in a similar position?
Since 1955, pensions have been paid worldwide, but there was never any mention of annual increases.
However, in the period to 1973, reciprocal arrangements were made between the UK and 30 other countries, which allowed for annual increases to be paid in certain countries. This was seen as making it easier for people to move freely between countries during their working life without suffering penalties in retirement for doing so.
Very few new agreements have been signed since, possibly because the EU rules meant that there was no need for them between EU countries.
Pensioners living in the EU, Norway, Iceland and Liechtenstein do get increases, but there is no guarantee that this will continue following Brexit.
Inevitably, the UK government will be tempted to save money by ending the increases to pensioners living in the EU.
It is already estimated that the Treasury saves around half a billion pounds a year from pensioners excluded from the increases. This could easily double if pensioners in the EU were to be treated similarly.
The number of overseas voters still on the UK electoral register is negligible, so the government might decide that upsetting these people would have a very modest negative effect. One result could be that more expats would get themselves back on to the UK electoral register (if it were possible for them to do so).
There is also the question of people who are planning to retire to a EU country in the future. They might show their dissatisfaction at the ballot box.
Another reason for the government might not stop the increases is the possibility of large numbers of pensioners living in the EU finding that they have no choice but to return to the UK
If access to free healthcare in the host country was also abolished, the UK government could easily find that significant numbers of pensioners return to the UK, which is a situation it would want to avoid.
For this reason, it is to be hoped that state pension increases will be paid, and there will almost certainly be considerable pressure on the government to find a way to preserve the existing system.
BREXIT & The Spectrum IFA Group
All of the Spectrum team and the majority of our clients are extremely disappointed with the result of yesterday’s UK BREXIT referendum.
What will the leave vote mean to our clients and potential clients?
In terms of dealing with Spectrum, we are an EU licensed IFA firm, not a UK or Gibraltarian firm trading under EU passporting arrangements.
Most of the products we recommend are individually EU compliant based in Dublin, so no change there.
Existing EU resident expatriates and new UK expatriates will now need our advice and services more than ever before. Once the UK actually leaves the EU there will be issues to solve in relation to Healthcare and Pensions, for example.
Many of our clients have opted to transfer their UK pensions to an EU jurisdiction (QROPS), the main reason being that they are fed up with frequent changes to UK rules. We now expect even more UK pension rule changes. We expect more people will be looking to transfer their pensions to achieve a degree of certainty in the future now that the UK are leaving the EU.
So for Spectrum, our clients and potential clients, we see it as “Business as usual”.
Our belief is “With Care, You Prosper” and we remain available to help where we can.
Michael Lodhi CEO
The Spectrum IFA Group