QROPS – act sooner rather than later

Your pension pot is one of the most important aspects of financial planning. For UK residents living overseas, Qualified Recognized Overseas Pension Schemes (QROPS) can be an excellent way to maximize your pension pot from taxes, whilst providing you with more flexibility. The purpose of the scheme is to provide expats, or those planning on living overseas in the future, easy access to their pension fund. For many UK expats living overseas, QROPS is a fantastic option for their retirement planning.

Before anything else, the UK’s pension situation is concerning. Private pensions, such as final salary schemes, were made during a time when people were dying younger and having shorter retirement periods. Quite a few companies in the UK, including household names such as the Royal Bank of Scotland, have future pension liabilities which are greater than their total value on the stock market. In the current situation, more and more pension schemes are being changed. Those who transfer their pensions overseas are ring-fenced from such changes.

Moreover, new changes in UK law will make it possible for retrospective changes to pensions to be made, for example by changing allowances available to dependents. Further planned moves by the UK Chancellor George Osborne to change UK expatriates tax situation, by in affect suggesting that UK earned income such as rental income will be taxed more highly, gives a further reason why more and more people will consider cutting their financial ties with the UK.

There are also obvious tax benefits in terms of overseas transfers. Some pensioners are taxed at 40-50% and often have to pay inheritance tax, whilst transferring overseas can allow that tax rate to be cut close to zero, both when you are alive and the lump sum after death.

A further benefit of QROPS is the flexibility they offer clients, which a good adviser can take advantage of. Not only can clients take a lump sum upon retirement, it is possible to review funds every three years and take a draw down every year to provide pension income. Typically, many pensions in the UK are held in low-yielding government gilts, which therefore decreases the likelihood of strong investment performance, especially as interest rates are likely to stay low for the foreseeable future. The ability to denominate the pension in the local currency, can also reduce future risks to your pension’s purchasing power.

So who can qualify for such schemes? Rules differ depending on providers, but generally anybody who has a pension pot in access of 50,000, who has a private pension over the age of 55 and isn’t drawing it, and is a UK non-resident can apply. If you have any questions regarding QROPS, don’t hesitate to contact me via email – International AMG – adamfayed@iamgltd.com

Risk and return

Risk is an important subject in life, and vital in investing. Even novice investors understand that there is some trade-off between risk and potential returns. However, most investors tend to want to take a balanced approach to risk, and very few are cavalier on the subject. The following article will look at some types of risk, how to reduce them, and misconceptions about the subject.


Types of risk


There are too many types of risks to speak about here, but below deals with some of the most important types of risks:


Political and legal risks


A gain only occurs once you sell, and hence no gain can be achieved if your investment has been confiscated from you due to a nationalistic government being elected, or new laws which enact confiscatory tax rates.


Illiquid investments


In addition to the above, if you can’t sell an investment because you can’t find a buyer, then you could be left with absolutely nothing.   Land, property and illiquid funds all have risks, including hidden risks, which liquid cash and property investments don’t have.


Currency risks and inflation


Your returns can be dramatically reduced if you invest in a financial instrument which is not denominated in a currency which you plan to spend money in, or if inflation is higher than expected.


Credit or default risk


Of particular concern to investors who have government or corporate bonds in their portfolio, is the risk that the entity will not be able to pay their bills – witness the threat of certain European governments for investors to take `a haircut`.


Interest rate risk


When central banks unexpectedly increase or decrease the base rate, all asset classes are affected. Typically currencies tend to rise, whilst real estate, gold and any speculative investment funded by debt decrease.


Market risks/volatility


This is particularly important for short-term investors. Short term news changes the price of securities instantly – sometimes by many percentage points if leverage is used by major financial institutions to short a stock or currency. Timing markets is almost impossible, and hence volatility due to unexpected news can hit speculators hard.


Doing nothing!


People tend to decide to do something if two conditions are met: they are uncomfortable about where they presently are and comfortable about where they are going. Therefore one of the risks of thinking about risks all the time is……that you will do nothing! As a result of this you will be one of those people who will not have the money to retire when you want or do the things that you want to do, when you want to do them.


How to reduce financial risk


Have some cash


In most situations having too much cash in current accounts is foolish because the rates of returns are so small. But having 6 months living costs in savings, in a currency with a track record of maintaining some value, makes great sense in case the worst case scenario happens.


Protect your income and health


Most people wouldn’t dream of buying a $200,000 house and not insuring it, or a $50,000 car. But your health really is your wealth. If you are disabled, especially as an expat living abroad, who is going to pay the bills? Your social security back home won’t. Quality health and income protection insurance is cheap relative to the cost of losing your health.




Diversifying doesn’t mean investing in every asset class. But it does mean having a balanced portfolio, or accepting that having an unbalanced abroad might lead to big falls as easily as big gains. Having a cushion in liquid cash, one house as your home provided it is not overly leveraged, little or no debt, equities in developed markets and SOME developing markets and commodities makes sense for most client’s risk profile.


Avoid leverage and illiquid funds


Avoid stretching yourself to buy a house and thereby ensuring you not only can’t move for a pay rise, but might get yourself in negative equity. Avoid funds which are illiquid regardless of past performance unless you want to expose yourself to a lot of hidden risk.


Save monthly


Timing markets is very difficult and most people don’t have a lot of self-control. Therefore, saving monthly in a way that ensures good habits, is an excellent way of having self-control. Direct debits linked to an investment account are one such option. Moreover, dollar cost averaging means that monthly savings get you out of the timing trap. In other words, even if markets fall, you can make money if you are patient as you are buying cheap.


Save for the medium or long term


Partly linked to the last point, medium and long term investors do not need to keep logging into their accounts to check values. As much as timing markets is difficult, a market crash can even help those investing for the long-term, provided they have cash lying around,


Don’t panic!


Do not panic if your account is down, and in some situations, see it as a buying opportunity!


Don’t become too enthusiastic when the going is good!


As Warren Buffett said, if too many people are on one side of the boat, one should be worried. Bubbles occur when people get too bullish about the outlook for one particular asset class. Don’t be that person who buys your 5th house on mortgage, assuming that the value is going to keep going up and up.


Don’t assume


Don’t assume that as a UK expat you can get free NHS healthcare if you get sick whilst overseas, that the average age of death and retirement won’t change, that you will have enough in retirement, that you will get a specific sum from inheritance and that you will always have a stable job and business.


But if you are going to make just one assumption…….


Assume that you may never have enough. Take any figure you have in mind, whether that is your ideal retirement income or your six month savings cushion, and double that figure. Few people ever have enough. And if nothing happens, no harm has been done.



Some misconceptions about risk


There are so many misconceptions about risk. I will just deal with a few of the most common:


Risk/volatility are the same thing


They are not. The Soviet Union seemed `stable` before it collapsed, as did the housing market before the financial crisis. If an investment is not moving too much to either side, that could be because there are investors with differing opinions (which is sometimes a good thing), or it could be because of other reasons. Perceptions change. Especially with individual firms. Malaysia Airlines doesn’t look as stable as it did last year, because the facts have changed.


Property is a safer investment than stocks


Real estate is a medium-risk investment in most markets. Yes everybody needs to live somewhere, but they don’t need to buy a place. It is an illiquid asset, which has the risks which were alluded to earlier. There is fire and flood risk, re-sale risk due to a lack of buyers, more tax risks than stocks, it is harder to hide from a partner in the event of a divorce and it brings about many social, legal and political risks. Moreover, over the long-term, stocks in developing markets tend to outperform real estate investments.  This is because companies tend to become more efficient over time.  The 100 biggest firms in the world today are clearly more efficient than those 50 years ago.  As technology improves, the very best firms in a generation from now, should be more efficient than those today.  In comparison some of the factors that have given rise to rising property prices – i.e loose monetary policy, women joining the workforce and increasing household earnings and rising population levels – aren’t likely to continue into the next generation in many countries.


Physical assets are less risky


One can touch property, land, gold, cars and so forth. That doesn’t mean they are safer. To the contrary most of the aforementioned assets can be inherently risky, especially if you invest in them in the wrong way. If you are really bullish about property prices in, let’s say Canada, and you don’t plan to live there, investing in a reasonably priced fund which tracks the price of 50 property developers in the North American market might well be a better bet than buying just ONE property.


In essence, if you don’t want to take risks, don’t invest, which is the biggest risk of them all.

The Truth About Insurance – B2B Cambodia Magazine Article

The following is an article which was published by B2B Cambodia, and can be found on the following link: http://www.b2b-cambodia.com/articles/the-truth-about-insurance/

There is much misunderstanding and many misconceptions about insurance.   This article will look at the most important types of insurances and address some common misconceptions:

Medical Insurance

Quality medical insurance is something everybody should consider. Nobody wants to have an $180,000 medical bill, which is possible after a situation such as being airlifted to Thailand for treatment after being involved in a serious accident. Although Cambodia is becoming safer, but is still undoubtedly a dangerous place, with frequent traffic accidents and diseases prevalent.

The main reason for buying medical insurance is to insure against events which can cost tens or thousands of dollars. The cost of medical insurance is very reasonable for anybody under the age of 35, and relatively affordable for most people.

Life Insurance

 Anybody who has children or dependents such as elderly relatives, should look towards life insurance as a good inheritance and income protection tool.

Cambodia and most Asian countries do not have basic social security, and even in the US and UK the level of support given to the unemployed is not enough to sustain a comfortable living standard.

Life insurance is something everybody should consider, especially those of a younger age. There are two types of life insurance – term and whole of life.

Term life insurance is purely insurance; there is no investment component. Therefore, the money cannot be cashed in whilst you are alive. The money is given to relatives or friends when a death occurs. The sum insured is high. In comparison, whole of life insurance is a mixture of investment and insurance, which means that you can cash in the money you have put in. However the sum insured is much lower.

To illustrate the differences in these two insurances, we will use an example of a 30-year-old. The following figures are an illustrative example only, and differ depending on companies used, and many other things.

A $200 per month premium will give the 30-year-old client about $500,000 of worldwide, international standard, life cover. But the money cannot be cashed in until death. A 5% annual (and optional) increase in premiums per year, will guard the $500,000 from inflation.

Whereas, the same 30-year-old will only get about $235,000 from the whole of life policy, but can cash in the money and not make a loss after 10-20 years. For clients in their mid-twenties, the sum assured is much higher, thus it is always better to insure yourself at a younger age.

Income protection/critical illness

Sometimes we lose our income due to injury or illness. Income protection insurance is a good tool to insure your wages/profits in case of serious accidents or illnesses. For as little as $50-$100 per month, you can guard against threats if you are unable to work.

Misconceptions about insurance

There are many misconceptions about insurances:

1). Insurance firms don’t insure people who have pre-existing conditions.

Not always true. This depends on the products and the insurance company, but for basic health insurance no medical questionnaire or exam is required.

2). A medical exam is needed for life cover?

Not always true. Some international firms allow those aged the under 40 to get as much as $550,000 of life cover with no medical exam and medical insurance.

3). Insurance companies have a bad record of paying out.

Some do, which is why brokers such as Imperium Capital are very selective about which one they choose to represent. The vast majority of international insurers are very clear about what is covered and for what price, and the process that needs to be undertaken to make a claim.

4).   Insurance is dead money. Often true if nothing happens, but not always so.