Le Tour de Finance – British Embassy Paris 19th October 2016
The Spectrum IFA Group, as one of the participants of Le Tour de Finance, is proud to announce that the event of 19th October will be held at the British Embassy in Paris.
This prestigious event brings together a number of experts from major British financial institutions on subjects such as UK/French Tax Issues, BREXIT and what this could mean for British expats, Pensions/QROPS and Tax Efficient Investing and Estate Planning for expats.
The popular Tour de Finance events are an excellent opportunity for expats living in France to get those all important questions answered by specialists in their respective fields. The events will also give you a chance to meet other like minded expatriates in a relaxed and convivial atmosphere.
The event will commence at 18.00, with a complimentary buffet in the Embassy from 20.00 – 21.00.
If you would like further information or would like to book a place, please contact us
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be.
Send us your questions and the event you will be attending and we will try and cover them on the day:
Please click here Le Tour de Finance Questions
Should you consider transferring your Final Salary Pension Scheme?
There have been a number of recent changes within the UK economy and UK pension rules 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 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
– Gilt rates are at an all time low. This has caused transfer values to be at an all time high, some transfer values have increased by over 30% in the last 12 months.
– Actuaries Hyman Robertson now calculate the total deficits on remaining final salary pension schemes as £1 Trillion!
– Recent examples show that these very large deficits 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 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 have to pay large premiums (a levy) to the PPF in order to fund the liabilities of insolvent schemes. As more schemes fall into the PPF there are fewer remaining schemes that have to 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 likely the PPF will end up with the same problems as the final salary schemes, they won’t 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 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. 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.
– 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 on 23 November 2016. Could the Government make any further changes to 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? – 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 – Investment returns have not been as high as expected, also there has been a very large reduction in equity (shares) content in final salary schemes, this is now around 33%, in 2006 the average equity content was 61.1%.
Benefits were too good – Simply, 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 happen in the Future?
– An end to the ability to transfer out of such 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
Le Tour de Finance Gayda October 2016
On Friday 7th October, 62 invited guests attended the 113th Le Tour de Finance event, once again staged in the beautiful setting of Domaine Gayda, in Brugairolles in the Aude. This is the seventh time The Spectrum IFA Group has returned to Domaine Gayda, and after the presentations guests were able to sample some of the wines produced there.
On arrival, guests were treated to coffee and pastries before listening to six presentations on a range of financial subjects including Assurance Vie, Pensions, Financial Markets and Currency Exchange and French Tax issues. The presentations were delivered by industry professionals and commenced with a presentation by Michael Lodhi CEO of The Spectrum Group who immediately drew the attention of the attendees by addressing the issue uppermost in the guests’ minds, that of the EU Referendum result and how it would impact the expat community. Michael then went on to highlight the other main theme of the day, that of the state of the UK pensions industry, scheme deficits and the options open to pension members.
Michael then made way for Jeremy Ferguson of SEB Life International who spoke about Assurance Vie, its tax advantages in France both for income and inheritance tax, and demonstrated the product’s flexibility in adapting to changes in the policy-holder’s circumstances. This is always a popular presentation, and didn’t disappoint.
Following Jeremy, we heard a presentation on the current situation in the financial markets delivered by Robert Walker from Rathbones, who shared the ‘house’ view on the impact of Brexit on the investment markets, and on the value of the pound. Of particular interest were his views on where the true value of the pound lies and the timescales before those values are likely to be restored.
Following Robert came a short presentation by George Forsyth of Prudential who presented the Prudential International Assurance Vie and how it differs from the SEB Life International contract. Majoring on the strength of Prudential’s investment funds and how this allows the returns to be smoothed out, rather than suffer the periodical fluctuations of the investment markets, George was able to convey the view that the volatility in global markets can be successfully managed without causing the investor sleepless nights.
There was a noticeable sitting up in seats when the next speaker stood up to speak – Paul Foreman from Momentum Pensions. Speaking about the developments in pensions brought about by last year’s change in legislation, it was clear this was a subject of great importance to the attendees. There is clear concern being expressed currently and this was confirmed to us in feedback received after the event. Paul delivered a highly informative presentation that inevitably raised more questions than answers, but an opportunity to ask those questions came over lunch.
Pippa Maile of Currencies Direct then delivered a typically entertaining presentation on the different transaction opportunities available through the Currencies Direct online portal. Once again this was of particular interest to the room.
Finally, guests were introduced to Rachel Thomas-Bonnet whose company Perfide Albion provides help and support in a whole range of aspects to ex-pats, ranging from help with property purchase, entering the French healthcare system and (noticeably more reluctantly) re-registering your car in France. Rachel also helps with completion of tax returns, and through her work with Notaires coupled with her legal training she has built up a reputation as the go-to person for all aspects legal. It was clear that Rachel was a popular speaker by the comments made by the attendees and the number of people who made a bee-line for Rachel over lunch.
The presentations were then wound up by Michael Lodhi who invited all to stay and enjoy the lunch provided by Domaine Gayda and to sample some of its wines.
To all of us there, it was evident that the guests had found all the presentations highly informative and of value to them. Once again, a very successful Tour de Finance.
Fonds en euros in assurances vie policies.
There has been concern for some time, about how plummeting bond yields may affect the extremely popular ‘fonds en euros’ (by far the most popular choice for French investors in assurances vie policies). The question is how life insurers are going to be able to continue paying an acceptable annual return to their policyholders, while sovereign bonds offer increasingly low (or even negative) returns?
To explain, these ‘fonds en euros’ have to guarantee capital whilst paying a bonus every year. The only way that a fund manager can be sure of meeting this obligation is to put the vast majority of investors’ money into French government bonds. By doing so, they fund government debt to the tune of trillions of euros.
As recently as 2007, they were paying an attractive 5% per annum net. This has now fallen to about 2.5% and are set to fall further, almost certainly to under 2% for 2016. With bond rates at historically low levels, they should now only be paying about 1%, but companies have been dipping into their reserves as they fear that such a low rate would lead to a mass exodus from these policies. This has inevitably caused concerns about the financial stability of the insurance companies.
There have been several recent developments:
1) The state has imposed new reporting requirements on life insurers from 1 January 2016 under which they are obliged to provide details of policies with a value of more than €7,500. This is to assist the fight against money laundering but it could also be used to test the solvency of insurance companies.
2) For the past few years, the French Ministry of Finance and the Governor of the Bank of France have been consistently urging life insurers to lower returns on their ‘fonds en euros’. This has not been sufficiently acted upon and the government has now passed an amendment to Article 21a of the law “Sapin 2”.
Voted in secret on June 23 (with the French population concentrating on their imminent summer holidays and the euphoria of the European Cup!), the new legislation passed virtually unnoticed by the mainstream media.
There were very few immediate reactions, even though some members of parliament were taken aback by this amendment when it was presented to them to vote on by the MP proposing the bill.
The government, as has often happened in the past, conveniently happened to be going on their own summer holiday immediately afterwards. This avoided their having to answer any awkward questions, had this matter happened to come to the attention of the media!
Whether this legislation ever needs to be acted upon depends on government bond and bank interest rates. However, the future certainly looks bleak for investors in ‘fonds en euros’ (probably 90% of all French assurance vie policyholders).
What does this new law actually say and how will it affect you?
It gives the ‘Financial Stability Board’ (‘HCSF’) the power to ‘suspend, delay or limit temporarily, for all or part of the portfolio, withdrawals or the option to switch funds’.
The implications of this are clear: overnight, at the request of Governor of the Bank of France, the HCSF may prohibit you carrying out all normal policy operations, including withdrawals and fund ‘switches’.
In short, some or all of your assets could be frozen for “a period of 6 months, renewable” (i.e. for whatever time is required for the crisis threatening an insurance company to pass). It is not inconceivable that your investment could be reduced in value in order to avoid an insurance company becoming insolvent. Article L.612-33 of the Monetary and Financial Code provides the means for this reduction to be imposed. It is not known how this would affect the official guarantee of €70,000 for every assurance vie policy.
People are becoming increasingly disturbed, and rightly so, that this draconian law will now allow the authorities, in total disregard of contract law, to deprive you of access to your money!
However, on closer inspection, the powers given by this new legislation were already granted to the ACPR (Prudential Control Authority and Resolution) by Article L. 612-33 of the Monetary and Financial Code, as follows:
“If the solvency or liquidity of a person or institution subject to supervision by the Authority or when the interests of its customers, policyholders, members or beneficiaries, are compromised, the Prudential Control Authority shall take the necessary precautionary measures […] it can, as such: […] 7. instruct a person or institution […] to suspend or limit payment of cash values, the option of switching investments, or the granting of policy loans.”
One should remember that similar provisions exist in the banking sector. The directive on the recovery and resolution of banking crises (BRRD) authorizes freezing of clients’ assets and potential loss of money in bank accounts, in case of any difficulty that might lead to insolvability..
The new version of the text is intended to prevent and reverse the effects of a contagion that could affect assurance vie investors in the event of a severe financial crisis, It is designed “to preserve the stability of the financial system or prevent risks seriously threatening insurance companies or a significant number of them.”
Clearly, these measures are intended to protect insurers, especially if investor panic sets in and there were mass surrenders of assurance vie contracts, an event which insurers would be hard pressed to cope with. They are holding bonds with maturity dates of ten or even thirty years from now. To try and offload trillions of euros of bonds would just not be possible.
How to react?
One suspects that this situation is worrying insurers because they are struggling to meet the expectations of their investors. This is eating into their reserves and, regardless of the prospect of an eventual increase in bond yields, some of them could find themselves in a precarious situation in the months and years to come.
The threat is therefore not just a short term one.
Of course, it would be reassuring to think that worried investors would not panic and withdraw their money from these policies, knowing that this would only exacerbate the situation.
Policyholders are all too well aware that if they rush en masse to cash in their contracts, they could actually cause the assets in these policies to be frozen. But is that going to stop them trying to be ‘first in the queue’ and avoid the suspension of withdrawals?
The ideal scenario would be for investors to stay calm and avoid possible future difficulties by gradually switching out of ‘fonds en euros’ to other assets (unit linked multi-asset funds, property funds, etc). We will see if this is what happens!!!
In spite of all this, assurance vie remains an attractive investment, especially in view of its advantageous tax benefits. Investors therefore have to weigh up the advantages compared to what is obviously an increased element of risk.
Fortunately, there are companies who offer alternative funds to ‘fonds en euros’. There are also policies domiciled outside of France (in Dublin, for example) who should be completely immune to this French legislation.
Le Tour de Finance – Autumn Leg in France
The autumn series of Le Tour de Finance events started off in Switzerland at the end of September and are moving towards the southern regions of France for the early October seminars, and then north with a quick visit to Brussels and then on to Paris before finishing in the north west regions.
- 5th October – Les arcs sur Argens, The Var
- 6th October – Chateau La Coste, Le Puy Sainte Reparade
- 7th October – Domaine Gayda, Brugairolles, Languedoc
- 18th October – Brussels, Belgium
- 19th October – British Embassy, Paris
- 1st November – Ploermel, Brittany
- 2nd November – Silfiac, Brittany
- 3rd November – Evron-Mezangers, Mayenne
To book your attendence for any of these events, please click here
So far, Le Tour de Finance in 2016 is proving to be the most popular series of events ever. The seminars offer English speaking expats a chance to meet various experts from large independent finance businesses in the flesh. Coaxed out from behind their desks, these senior executives from companies such as Tilney BestInvest, Prudential, Rathbones, Momentum Pensions, SEB and Currencies Direct give short presentations on a range of subjects and then welcome questions from the floor. This really is the chance to get those all important questions answered by the professionals.
This unprecedented access to a range of international and independent experts is what sets Le Tour de Finance events apart.
The first leg of the autumn tour moves through the south of France and then heads direct to Paris on 19th October with a prestigious event at the British Embassy. In the first week of November the tour will head west to Brittany and Mayenne.
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be. If you’d like to send us your question please click here to complete the form.
Warning – UK Pensions
In the UK the FCA and HMRC have been making frequent changes to Pension rules and the way pensions are taxed. It has been for this reason that many clients have moved their pensions out of the UK. Now with BREXIT around the corner I suggest we may see even more changes.
Transfers out of most public sector schemes have been stopped– but not all, yet! That means that many former public sector workers; Teachers, Civil Servants, Nurses, Doctors, and many Local Government officers, have been unable to transfer their pensions.
More than 100 company pension schemes in the UK are in deficit i.e. they do not have enough money in them to pay out the expected benefits. Some schemes are good and have sufficient funds. Is yours?
In the past our firm have often advised clients to leave defined benefits schemes (final salary schemes) where they are as they usually provided a guaranteed income. Now that view is changing.
Transfer values are at a high at the moment because gilt returns are very low. This is the time to review your pensions before rules are changed yet again. There may only be a short window of opportunity to make sure you can take control over your existing pension funds.
Make sure you review your personal situation BEFORE article 50 is invoked i.e. before the UK start the process of leaving the EU. It is important to find out if your pension pot sitting in the UK is safe and well-funded.
A consultation with me is free. It will cost you nothing but time – I do not charge for a consultation. Although, I might let you pay for the coffee!!!
Le Tour de Finance heads to Switzerland
Le Tour de Finance, 29th September Nyon, Switzerland.
“Three ways to save tax”
What is Le Tour de Finance?
Are you interested in finding out how to make the most of your money in France, Spain or Italy? Do you have pressing questions about making international payments, pensions, tax, wealth or the healthcare system? Why not take the time and come to a local event, bring some friends and make it a great day out?
Le Tour de Finance is the financial forum for expats which will help you with a range of different financial products and services. Just as Le Tour de France takes a route throughout the regions of France, so too does Le Tour de Finance, but we also visit Italy, Spain, Switzerland and Belgium. We want to reach expats where you live so that you can seek advice particular to your local area. Tax advice, pensions, mortgages, healthcare, schools, business advice and making the most of your assets are just some of the subjects that expats need to know more about. Le Tour de Finance is the ideal opportunity to find answers to the most pressing questions facing people living in France, Spain or Italy.
The forum will bring together key players who assist expats settling or already living in these countries. It will also be an ideal opportunity to socialise by enjoying a free Buffet lunch and meeting people in similar circumstances in your neighbourhood.
As an expat, do you make the most out of your finances? Come and join us for expert advice and to meet other like-minded expats in your local area. The event starts at 18.45 with a welcome drink, followed by some brief presentations from experts on a range of topics that could affect you now, or in the future. This engaging events ends at 20:30 with drinks and canapes and a chance to meet the experts and hopefully make some new friends.
Le Caveau de Nyon Château de Nyon, Place du Château, 1260 Nyon,Switzerland
29th September, 2016 The event starts at 18.45 and ends at 20.30 with drinks and canapes.
Brief presentations on a range of topics including: Tax efficient planning: for Frontaliers and Swiss residents; Why you need a Swiss Will!, Transfers between currencies: beat the bank margins!, Wealth management: seeking positive returns post-Brexit, QROPS- the latest rules on transferring UK pensions overseas, and what the advantages may be, How do the Swiss Pillars work, and how do I save taxes?, Swiss Mortgages- how they work, how to optimise to save taxes.
The Spectrum IFA Group Award for their Technical Articles
Technical knowledge and a deeper understanding of tax, investments, pension and financial planning means a better outcome for our clients and also a more satisfying professional outcome for us. One of the ways we do this is to use a technical articles website called Mondaq for our research. We also contribute to this site by writing articles.
In August 2016, The Spectrum IFA Group was pleased and extremely proud, to have been awarded the ‘Top Communicator Award’ for Spain. Our posts have covered a series of topics such as “Brexit and Tax in Spain“, “Insight into Wealth Management“, “Final Salary Pension Deficits” and more. Our articles had the most reader response of any contributor.
This was no mean feat given that Mondaq publishes thousands of high quality articles each year from thousands of sources!
I have a long term relationship with a UK regulated financial adviser, why should I speak to French regulated one?
Many of us have banking and financial services relationships from the UK and whilst you may feel a financial review now you are resident in France isn’t urgent or important the benefits can be enormous. A full financial review can be free and you should always ask what costs are applicable to any consultation you arrange. Some of the benefits include:
Capital Gains Tax – Certain tax efficient savings and investments recognised by HMRC would not qualify under French taxation, leaving you with a tax bill on the gain element.
Inheritance Tax – UK inheritance tax planning is very different to that in France and even though you can opt to have your UK will recognised in France, tax on your estate will be based on French tax rates and laws.
Compliance with the French tax system – Knowing how and when to declare your investments and savings can avoid financial penalties for non-disclosure.
It is very important to remember that whilst your UK financial adviser has been of great service whilst you were resident in Great Britain, if they are not trained and regulated in the country you now live the French authorities will still expect your financial affairs to fully comply to French laws and this may mean you are presented with an extra tax bill for any non compliance.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
French Inheritance Planning
In May, I wrote about tax-efficient savings & investments in France, including Assurance Vie (AV), which is the most popular type of investment in France for medium to long-term savings. If you did not see the article, you can find it at www.spectrum-ifa.com/tax-efficient-savings-investments-france/
I had intended to return to discuss the benefits of AV for French inheritance planning, in the following month. But then we had the result of the Brexit vote and that caught my attention just a little more!
So now I am getting back to basics of what works for successful French inheritance planning for financial assets – regardless of whether the UK is in or out of the EU – and regardless of nationality. Without a doubt, this is the AV, as this is an excellent planning tool for protecting the survivor, providing you with freedom of choice about who you can leave your financial assets to, as well as mitigating the potential inheritance taxes for your beneficiaries.
In France, there are strict rules on succession and children are ‘protected heirs’, each being entitled to inherit a proportion of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, three-quarters of your estate must be divided equally between them.
However, for a quirk of historical reasoning, the death benefits paid from an AV fall outside of your standard estate. Therefore, you can leave the proceeds of your AV to whoever you wish and so get around the French ‘forced’ succession rules. I know that there will be many out there who are saying that you can do this anyway now, as a result of the EU Succession Regulations. Well that’s true, but maybe it’s not quite as straightforward as one might think – or at least hoped!
The problem is that even though the EU Regulations have been in place for more than a year now, these have not been widely tested. Notaires and cross-border legal specialists are still trying to get to grips with how these Regulations actually work in practice. So I, like many other professionals, still hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should be used. Early articles that I wrote on this subject can be found at www.spectrum-ifa.com/the-eu-succession-regulations/
The EU Succession Regulations do not change the potential French inheritances taxes that are payable, but an AV does. Whilst there are no French inheritance taxes between spouses and partners who have entered into a legal civil partnership (known as a PACS, in France), for other beneficiaries, the tax rate varies according to their relationship to you. For example, step-children (and other non-blood beneficiaries) are taxed at a punitive 60%!
For amounts invested in an AV before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500. Taxation is limited to 20% on amounts paid above the allowance up to €700,000, and at 31.25% for amounts exceeding €700,000 per beneficiary). There is still no tax between spouses and PACSd partners, whatever amount is transmitted.
There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be fully protected and then the capital can subsequently pass to your other beneficiaries, following the death of the survivor.
For amounts invested after age 70, the inheritance allowance for all your beneficiaries combined is reduced to €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.
Sadly, social contributions are now charged on any gain in the policy paid out as a death benefit. Even so, when the above inheritance planning advantages are taken into account together with the personal tax savings, this makes the AV a very attractive proposition.
Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.
The benefits of AV and tax-efficiency is a subject that we cover in our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”. Overall, 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 with less than a month to go, the event is likely to soon be fully booked. Therefore, you should contact us as soon as possible if you would like to come to the seminar. I will be at the event with our other advisers in this area, Rob, Derek and Sue.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you are not able to attend the seminar and 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 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 advisor 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 the 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.