Thursday, 26 August 2010

Explaining terms and expressions - Pensions

I have been requested to produce jargon-free explanations of expressions or terms used in Financial Services. After the previous articles on Investments and Mortgages, the third and final post in this series is Pensions.

A Day
6 April 2006 was the day the UK Government pension simplification rules came into effect.

ASP - Alternatively secured pensions
At the age of 75 an alternatively secured pension would allow an individual withdrawal of income, similar to an unsecured pension fund such as income drawdown

AVCs – Additional Voluntary Contributions
A pension top-up for an occupational pension scheme. The scheme members pay contributions into an arrangement run by the employer to boost the main pension.

FSAVCs – Free-Standing Additional Voluntary Contributions
A pension top-up policy for an occupational pension, but separate from the employer’s pension scheme and normally run by an insurance firm.

Comision Nacional del Mercado del Valores is the principal financial services regulator in Spain and responsible for authorising investment products. A CNMV adviser can be recommended, please click here

Direccion General de Seguros y Fondos de Pensions is the Spanish regulator for insurance products which can be marketed in Spain. Email me to be referred to an authorised adviser

The Financial Services Authority - the UK's financial services regulator. The FSA also ‘passports’ authorised advisers to operate in Spain. For a recommended adviser click here

Group Personal Pension
A type of personal pension offered by some employers but not classified as occupational (see money purchase pension).

Lifetime allowance
This is a limit on the value of retirement benefits that you can draw from approved pension schemes before tax penalties apply. The Lifetime Allowance is £1.8m in the 2010/11 tax year.

Lifetime annuity
A lifetime annuity converts money from a pension fund into pension income, which is taxable. There are different types to suit different circumstances and generally treated favourably for tax purposes in Spain.

Money purchase pensions
Some occupational pensions and all personal, group personal, stakeholder, FSAVCs and some AVCs are money purchase pensions. The contributions are invested in, for example, the stockmarket or bonds. The size of the fund depends on the contributions and how well the investments perform. At retirement, there is a choice of options to provide you with a retirement income.

Occupational pension
These are only available through employers and run by pension scheme trustees. There are two types – salary-related (defined benefit) and money purchase (defined contribution).

Personal pension
A pension policy taken out by an individual from an insurance company or another financial institution and into which personal contributions are made. It may also be offered by employers.

Protected rights pension
This is the part of a pension fund which was used to contract out of the UK State Second Pension (SERPS or S2P) that must be used to buy a protected rights annuity.

QNUPS -  Qualifying Non UK Pension Scheme, which means it meets the criteria set by the regulations the UK government brought out in February of 2010. This means that or a UK or non-UK resident, there is an opportunity to make contributions to overseas schemes, established as QNUPS, with the knowledge that those funds will be sheltered from UK IHT. Individual advice should be taken in all circumstances from a regulated and authorised adviser. Please email for a recommendation.

By definition, a QROPS is a QNUPS but the reverse cannot be said.

QROPS - Qualifying Recognised Overseas Pension Schemes
These became available from A-Day. It is a pension scheme set up outside the UK that is regulated and recognised for tax purposes as a pension scheme in the country in which it is located. QROPS have been established in various countries across the world, many in jurisdictions with beneficial tax rules. For specialist advice click here

Salary-related pension scheme (final salary or defined benefit)
A type of occupational pension. The amount of pension you get is worked out on your salary at or near retirement, or when you left employment, and your pensionable service.

Stakeholder pension
A type of personal pension that has to meet certain standards set by the UK Government. An individual can take one out or it may be available through an employer, but is not classified as occupational. 

State Pension
The UK Pension Service (part of the Department for Work and Pensions) will pay the basic State Pension based on an individual’s National Insurance contribution record. In addition, individuals may also qualify for the State Second Pension based on their own earnings and National Insurance contributions.

State Second Pension
The State Second Pension is an additional State pension paid on top of your basic State Pension. This was called SERPS. Self-employed people cannot build up a State Second Pension.

Tax-free lump sum
An amount of cash set by tax law which you can take at retirement free of tax. Salary-related occupational pension schemes may have different rules on the amount of tax free cash you can take. This is only tax-free to UK residents.

Unsecured Pension (Income Drawdown)
This is an alternative to buying an annuity but provides an income whilst the pension is still invested. At age 75, the unsecured pension must cease and be replaced by either a Lifetime Annuity or ASP. For non UK residents or those intending to become non-resident, QROPS could be another alternative.

Pensions Advisers, including the ones that I recommend, will be happy to cut through the jargon. Email me for a recommendation

Wednesday, 18 August 2010


·        Inflation back on the agenda
·        What interest rate are you getting?
·        Do you have a financial plan?

I make no apology for being controversial. Part of my make-up is to ‘tell it as I see it’. Something that is happening concerns me, whether you are in Britain, Ireland or Spain. However, I think a good financial plan can sort it out.

Many UK and Irish residents in Spain still have significant Savings in UK Banks and Building Societies. There are a variety of reasons for this but the one which concerns me most can be called ‘inertia’. “I should do something about it but I never seem to get round to it!” Maybe you should email to be introduced to a qualified adviser.

Tuesday 17th August 2010 was the day that the latest set of inflation figures were announced in the UK. The Retail Prices Index (RPI) was the long standing measure of inflation and currently stands at 4.8%. Governments have tweaked the indices and more recently the Consumer Prices Index (CPI) has become more widely used. The CPI now stands at 3.1%.

CPI in future will be used to up-rate pensions. It must be a co-incidence that it’s lower than RPI.

I looked at the best savings rates. Easy access, no notice, Halifax at 2.8% was the best I could find. You can lock yourself in for longer but then you pay a penalty for withdrawing your own money!

So you get savings rates lower than the rate of inflation and your cash is reducing in value as time goes by. That in summary is why you need a financial plan! To be introduced to an authorised adviser with knowledge of the UK and Spain, please contact me.

Time to stop the inertia, avoid your Savings becoming Losings.

Monday, 16 August 2010

QROPS - The questions!

·        What is QROPS?
·        How much does it cost?
·        Who can advise me?

So let’s start with a definition. Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced in April 2006, by the UK Government, as part of a process called Pensions Simplification (that’s not what I called it!).

I would like to present my article in a ‘Question and Answer’ format which should cover the main issues for those of you who live in Spain or indeed those who intend to live in Spain.

What’s the minimum amount I can transfer into a QROPS?
Some advisers regard sums of under £100,000 as ‘small pots’ not worth transferring. However, with extremely low annuity rates and poor rates under the GAD rules, readers with less than £100,000 be transferred need and deserve advice. Let me recommend an adviser, click here. If your adviser says your fund is too small – seek a new adviser!

Is the transfer into a QROPS expensive?
The main cost associated with a QROPS is the preliminary registered scheme
transfer work that is required before your pension assets can pass into a QROPS. This is specialist work and I’ve never thought cheapest is best in professional advice. However, it must be reasonable. A really good financial adviser, who is properly authorised and regulated, will put the costs in writing, before expecting you to sign up to their scheme. I’m happy to recommend such an adviser if you contact me here

What can I invest my QROPS assets in?
There is a flexible choice open to you and part of a good adviser’s process is to determine and agree an investment strategy which closely matches your needs.

Will any benefits I take from QROPS be taxed?
QROPS income is generally not taxed at source. The tax treatment of what you receive is very favourably treated in Spain, though you need individual advice to explain how it affects you.

What will happen to my QROPS when I die?
Any funds remaining when you die will either be paid to those nominated by you as beneficiaries or those same beneficiaries may simply continue deriving the same tax free advantages you were enjoying in your lifetime.

Are there any circumstances in which I shouldn't transfer to a QROPS?
If you want the certainty of income and are prepared to hand over your fund to a pension provider, then an annuity might suit you better than QROPS. I would not suggest you to transfer to QROPS if you intend to be expatriate for less than six years, but you need advice from an authorised and regulated adviser.

I’ve heard about unscrupulous QROPS providers and intermediaries, any
In May 2008, Her Majesty’s Revenue and Customs (HMRC) withdrew status from all Singapore based QROPS. This action emphasises the importance of taking independent advice from industry experts who are in regular contact with HMRC to ensure that any transfers do not nor are likely to fall foul of HMRC regulations. The best advisers can also offer a choice of QROPS based in more than one jurisdiction. Ask to be introduced

If you have a further question, I’d be delighted to answer it. Those of you who live in Spain or intend to live in Spain should be very careful when choosing an adviser. Any adviser can advertise on the internet or in a newspaper but that does not guarantee that they are properly authorised and regulated.

You can write to me with your personal experiences or to be put in touch with a recommended adviser Email me here

From my own experience, I only ever recommend advisers that I know and even then I am happy to help my readers by ‘looking over their shoulder’. Whatever you decide to do please tread carefully.

Thursday, 12 August 2010

Beware of vested interests

·        Unlicensed adviser says £1 will soon be €1.30

·        Currency broker says 'Pound will fall further. Buy now.'

We all know the expression ‘don’t believe everything you read in the press’. How much more, therefore should readers be wary of advertisements?

A well qualified, authorised and regulated Independent Financial Adviser would never advise a client to make an investment decision based on currency speculation. I only recommend authorised advisers!  click for further information

 If you see an advertisement, and they are often articles that look like editorial comment, you know that they want you to buy now and hope that the rate moves favourably. But it is based totally on speculation and forecast.

The Currency Dealer says buy now because the rate might be worse when you come to pay for your foreign currency. He bases his assumption on a speech by The Governor of the Bank of England. I read the speech too….it never mentioned currency rates! Mervyn King, in his own style, was warning of a long recession and that’s not new!

These two different articles in two newspapers giving totally different advice were completely aimed at selling their own product. There is, of course, nothing wrong with product selling, but how much better to get fully compliant advice? To be referred please email me

Beware of vested interests!

Monday, 9 August 2010

Financial News: Spain is a Tax Haven

·        Is it really?
·        How can I benefit?
·        You need to be Spanish Tax Resident

It’s an odd fact, but true, that a country like Spain can be regarded as a tax haven. Yes, it is, really. But to gain the benefit, you need careful planning and expert advice.

When I was planning to move to Spain, a few years ago, I came to the conclusion that, in tax planning terms, the UK was a good place to accumulate wealth, including pensions and Spain was good for retiring and spending the wealth. The same is true to some extent, even though the UK Budget 2009 (Labour) and the 2010 version (Coalition) may change that in future years.

The best firms of advisers will always offer a financial review based on all circumstances. It can be very misleading to deal with pensions, tax and even mortgages in total isolation from other financial issues.
Of course, larger firms may have specialists, but I would always prefer, and recommend, an overall review not one issue in isolation.
This statement, in my view is always true. But for tax planning and taking advantage of the Spanish system, it is must that your financial adviser, takes into account, all of your financial plans.

The key issues are;

  • Residential status and domicile
  • Where your assets are held
  • The nature of your current and future income

I recently came across a financial adviser who could not even distinguish between residency and domicile, when I checked the advice he gave one of my readers I was horrified. There are still advisers giving misleading, bogus and poor advice.

It is imperative that you seek out a professional adviser. I can help if you need me to recommend the right adviser . Email

Spain can be a tax haven but you will only benefit through sound professional advice.