Financial Update- Newsletter August 2019
Once again, there has been no shortage of talking points over the last 3 months where politics and markets are concerned.
The UK has a new Prime Minister, with Boris Johnson (or “BoJo”) taking Theresa May´s place at the head of the Conservative party. Boris went head-to-head with other frontrunner Jeremy Hunt, although in truth, this never seemed to be a fair fight, and Mr Johnson inevitably took the vast majority of votes – causing no great surprise.
What this change in Prime Minister means for the UK is anyone´s guess. Almost immediately after Boris was confirmed as the new PM, there was speculation that he might suspend parliament in the weeks leading up to the October BREXIT deadline. This would have meant Parliament being unable to “block” a hard Brexit and leaving without some sort of deal. This, however, was swiftly seen to by Parliament who blocked the potential suspension in advance.
Boris remains fairly bullish when speaking about Brexit and the need to leave on October 31st. Some would argue the timings are disastrous with 3 months to go until the UK (yet again) is supposed to leave the EU. Others would say the change was needed, as many believe that Theresa May´s heart was never in it. Boris, whether you like him or not, does seem to have a big more urgency about him... at least for the time being.
Europe itself remains in a gloomy position, with many seeing Europe as one of the worst culprits dragging the chain on any GDP growth. The European Central Bank (ECB) has cut its forecast twice over the past year and now the Eurozone economy is expected to grow at just 1.1% this year, down from 1.9% last year.
This has led to pressure on the ECB to inject some new ideas into the economy to help boost it. In particular, there are calls for the ECB to reignite its programme of buying European Bonds for the purposes of “quantitative easing”. Quantitative easing essentially pulls down long-term interest rates, lowering financing costs for businesses and investors, which in turn will coax them into long-term projects which will boost the economy.
Across the pond, the US has been steadily posting positive returns. The resumption in talks between the US and China over trade deals has caused reason for optimism, despite the belief that these talks will drag on for a while yet.
The US Federal Reserve (Fed) is holding a meeting this week (Tuesday and Wednesday) to discuss monetary and fiscal policy within the US. It is widely expected that interest rates will be cut between 0.25% - 0.5%, with the confirmation expected on Wednesday afternoon / evening.
Should the Fed cut interest rates as outlined above, it will be the first time they have done this since the financial crisis of 2008. The price of Oil and other commodities have already risen in expectation of such action.
What will be interesting to see is if the US will enter a full rate-cut cycle. The recent GDP figures were a bit stronger than expected, so this has somewhat dampened the view of the US entering into a long easing cycle.
As many of you have probably seen, Sterling has fallen significantly in recent weeks as investors grow increasingly worried that Britain is heading towards a disorderly and disruptive BREXIT.
Senior ministers said on Sunday that Boris´s government was working on the assumption that the EU will not renegotiate its BREXIT deal; this has caused panic at the heightened risk the UK could feasibly leave the European Bloc without a transition deal.
The European Central Bank also signalled last week that it is likely to cut interest rates, similar to the US, the only difference being that Europe is already in negative interest rates. The purpose behind this is to shore up the faltering eurozone economy.
Current exchange rates are as follows (as of 31.07.19);
GBP/ USD = 1/1.22
GBP / EURO = 1/ 1.09
EURO / USD = 1/ 1.12
Overseas Transfer Charge – Pensions
Many of us expats still have pension schemes in UK, and pensions generally can be the source of a lot of confusion. So what options do we have?
Well, it is possible to leave your arrangements where they are, or they could be transferred to an International Self-Invested Personal Pension (SIPP) or a Qualifying Recognised Overseas Pension arrangement (QROPS). An international SIPP or QROPS is a pension scheme established outside the UK, but has a similar setup to a UK registered pension scheme. The difference is, that for expats living in Spain, SIPPs or QROPS can offer much more freedom in terms of both income and investment choice compared to the majority of UK schemes.
However, since March 2017, certain transfers to overseas schemes will be liable to a 25% tax charge, called the “Overseas Transfer Charge” or OTC for short.
At present, the OTC only applies to transfers of UK benefits to a new provider OUTSIDE of the European Economic Area AND to a country where the member is not currently residing. To put it simply, the only way you can currently avoid this charge is by;
Transferring to a European QROPS; or
Transferring to a QROPS in any other country worldwide, in which you reside.
Assuming the UK does leave the EU and the European Economic Area, it seems unlikely that the OTC won’t be applied to all overseas pension transfers. It would be difficult to argue that UK Nationals living in Australia should be treated differently to those living in Spain.
If the OTC was introduced, individuals would see their future pension options reduced drastically. Nobody would be prepared to pay away 25% of their pension fund in tax.
Whilst the UK remains in the EU as the ongoing saga continues, it would be very worthwhile checking out your pension options if you have not done so already. If Boris has his way and the UK does leave the EU on the 31st October, then you have a little over 3 months to consider all your options.
The OTC is only 1 consideration, there are many other areas to look at including any guarantees that your existing arrangement might provide, and/ or what level of flexibility you want in terms of access to funds, post age 55.
3 months does not seem like a long time, but this does provide sufficient time to obtain the required information which will help you make an informed decision. All you need to do is get in touch!
Have you made your funeral plans?
In our experience, many of our clients would not know who to call and how to arrange a funeral here in Spain. We have heard many times of the stressful experiences others have had in trying to do so.
At the most challenging emotional time of bereavement, loved ones will have the task of arranging the funeral, not always in their locality, but in the cases of many children, they may well have to make funeral arrangements for their parents, from overseas. In many cases, cremations take place within 48 hours of the date of death. We can help provide a straightforward solution via our affiliates.
Local funeral arrangement laws and customs may require vital decisions to be made in a matter of hours not days, often involving legal discussions with non-English speaking personnel. It’s no wonder that a growing number of people in the Expatriate community are finding that the most comprehensive way to provide peace of mind and financial reassurance for those we love comes from a pre-paid funeral plan.
Planning and paying for your funeral arrangements in advance is the simplest and most effective way of easing the burden on those around us, right at the time when they will benefit from this the most. With just one phone call to an English-speaking helpline (open 24 hours) highly experienced support teams provide a seamless flow of communication between all parties, irrespective of language. Just as importantly, a pre-paid plan ensures that your family has nothing more to pay, no matter how many years pass between taking out the plan and needing the service.
A huge benefit to most expats is that the plan is transferrable. So should you be visiting family in the UK or be away on holiday when the worst happens, your plan value is completely transferrable for your peace of mind. With lots of expats living between the UK and Spain, this is invaluable.
With funeral costs having risen sharply over the past 15 years and continuing to do so, the inflation-proof and comprehensive nature of a pre-paid plan comes complete with an easy to understand, completely transparent set of costings which explain exactly how your arrangements will be met. The funds are held securely by an independent board of trustees and managed by leading fund managers, with the Trust scrutinised by The Funeral Planning Authority (FPA) to ensure the assets exceed the liabilities. The FPA also guarantee each plan, for a second layer of protection. You can even update your arrangements as often as required which means you get precisely what you wish for: burial or cremation or even repatriation to your home country. A church service or humanist ceremony can be arranged, everything right down to the detail of music and your own personal touches you would like.
There are flexible payment options available too. A pre-paid funeral plan can be paid for in full or the cost can be spread over a period of up to 5 years. It´s entirely up to you.
Please odn't hesitate to get in touch
+34 965 020 444
Clear Financial advice from our family to yours...