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Saturday, 12 July 2014
Wednesday, 18 June 2014
Retirement, including the time of retirement and the wealth in retirement, is always in the hands of the individual. Like other well developed countries, Australia’s government will ensure that you’re not flat broke – but they’re not going to keep your fridge stocked with beer and your barbeque loaded with shrimp. That’s all up to you.
Effective planning is all about getting stuff done. Plans on paper are great, but it needs to be executed for it to make any difference. This sounds simple, but is the biggest mistake people make –they can confidently state what they want in retirement (they’ve “planned”), but cannot demonstrate how they’re going to achieve it, and are not actually doing anything about it (it’s not effective planning). Quick tip: If you’re not currently saving for retirement, you’re not planning effectively.
Timely planning is all about getting stuff done at the right time, to make it better. It should be fairly obvious that those who start saving up for retirement at 45 end up with a lot less money in retirement than those who start saving at 25. This is particularly relevant to expatriates, because you’re often not forced to save for retirement (which you would be at home), and you’re living a great life on an expat package so don’t really spend too much time thinking about what happens when the expat package finishes. Quick tip: If you’re not currently saving for retirement, you’re not planning in a timely manner.
Intelligent planning is about squeezing every last drop out of what’s available to you. This includes maximising the benefits offered by governments, structuring your financial planning in the most cost-effective and tax-effective way possible, and allocating your accumulated capital in the most efficient way (amongst other things). Quick tip: If you’re not a pension expert, or you’re not using the services of a pension expert, you’re almost certainly not planning intelligently.
One of my colleagues, Paul Milbourne - who is an Australian pensions expert (and remains fully licensed in both Australia & Malaysia), is running a couple of seminars – in Batam, Indonesia, on the 24th June, and in Kuala Lumpur, Malaysia, on the 25th June – with a particular focus on some of the intelligent planning you can do if you own, or plan to own, property in Australia. On the most basic level, anyone who wants to retire in Australia will need somewhere to live, so it’s something you should consider now, rather than in future (timely planning).
It’ll also cover some of the tax-efficient ways of holding Australian property through a Superannuation (pension), how you can buy a property now (combining the use of international mortgages and pension savings), and how you can ensure that your total retirement package is greater than the sum of its parts.
If you’d like to attend one of the seminars, please just contact me at email@example.com; if you can’t attend but would like to discuss the topic anyway, please just let me know and I’ll arrange a personal introduction.
Finally, if you’re not planning to retire in Australia, most of the above still applies – so get planning!
Tuesday, 3 June 2014
Not long ago, the UK government said that it will definitely be introducing legislation to prevent the transfer of UK Public Sector Defined Benefit pension schemes as soon as possible, and the current consultation focusses on whether this restriction should also be applied to Private Sector Defined Benefit schemes.
“Defined Benefit” (DB) is the official term for what is commonly called a ‘final salary’ pension – i.e. a pension scheme which will pay OUT a fixed amount upon retirement. In comparison, “Defined Contribution” (DC) pensions are those which pay IN a fixed amount, but give no guarantees about what the pay-out will be.
Needless to say, DB schemes are generally seen to be much better for pension holders than DC ones, but also massively more expensive – as the schemes need to not only hit the growth targets set for them, but also cover any potential risk along the way. In the vast majority of cases, companies (and the government) vastly underestimated how much would have to be paid in to the schemes in order to be able to fund the fixed pay-out, leaving the schemes with a hefty deficit.
For example, Lloyds’ deficit is £998million. Barclays Bank has a deficit of around £1.8billion. At least five of the UK’s largest companies – BAE Systems, British Telecom, International Airlines Group (British Airways), Royal Bank of Scotland, and the insurer Royal & Sun Alliance – have pension liabilities which are greater than the equity market value of the entire company.
As companies (and the UK government) gradually come to terms with the problem, changes are being made. One in three corporate DB schemes have been scrapped in the last decade. According to the UK Occupational Pensions Regulatory Authority (OPRA), over 58,000 company schemes have been wound up. Over 110,000 company schemes still exist, but OPRA says that 30,000 of those are under threat as the funding crisis becomes more apparent.
Some companies have gone bust – notably Woolworths and MFI – taking their pension schemes down with them. Just as with anything else, any guarantee is only worth the amount that the guarantor can afford to pay – so when the company disappears, so does the “guaranteed” defined benefits of its pension.
The UK does have a Pension Protection Fund (PPF) to pay out to individuals whose pensions have gone bust – which has bailed out around 700 corporate pension schemes so far – but this is capped at around £32,000 per year, and it doesn’t cover inflation-linked increases. Its purpose is to ensure that people are not left with nothing; it’s not there to ensure that you get what you were promised.
Therefore, the danger with the current proposals – which are expected to be implemented later this year – is that if an individual has future concerns about the ability of their former employer to fund the Defined Benefits of their pension scheme, and want’s to transfer to another scheme before the company goes bust, they won’t be able to and could lose a significant amount of their retirement income.
The only way to properly protect yourself against potential future problems is to act now.
Using a longstanding pension arrangement known as a “Qualifying Recognised Overseas Pension Scheme” (QROPS), individuals can currently transfer their pensions away from the at-risk corporate-backed group schemes, and into a UK government-approved pension scheme, which has a number of benefits.
Firstly, as soon as the transfer is made, it is ring-fenced for the individual, rather than collectively with all other employees and former employees of the company. This immediately eliminates any risk of the company or its pension scheme from collapsing.
Secondly, as soon as the transfer is made, it eliminates the risk that future changes could be retrospective. The current plans include allowing, in certain circumstances, companies to make changes to the pension promises they gave you in the past, for example removing the allowances for dependents, widows, widowers and children, or increasing your retirement age so the pay-out starts later than you were originally promised.
Think that sounds highly illegal? It is. But soon it won’t be, because the UK government are changing the law, to make it legal. Isn’t democracy wonderful…
Thirdly, it gives you a lot more control over your own pension – you can even change into a different currency if it suits you better.
So what should you do about it? Quite simply, if you have a UK pension, you should look at it properly, now.
But be wise – as with anything else, not all changes are good changes. The QROPS structure is great, but it’s a step towards financial security, not the final destination. Once your transfer is made, it’ll need to be looked after properly – what’s the point of taking it out of one high-risk place, and investing it into something else that’s just as high risk – or even higher?
Unfortunately, whilst the structure offers great freedoms, those freedoms can be destructive if used badly. Investing your pension fund into something which goes bust will leave you with no pension. It’s really, really important to get it right.
Are we able to help you with these sort of things? Yes of course; whether you’ve still got a UK pension or you’ve already transferred it and want a quick second opinion on the current risk level, I urge you to get in touch, before it’s too late.
And if you currently don’t have a pension, you’re in even greater danger of struggling through retirement – so start now!
Wednesday, 21 May 2014
Here in Indonesia, the political battles have led to different outcomes, notably some horse-riding. We even have two rival proposals to reduce the government’s fuel subsidy liability, which could have a massive positive impact on the national finances – one to ban foreigners from buying subsidised fuel, which will definitely reduce the amount the government spends on fuel subsidies, and one to gradually phase out the subsidy completely, thereby removing the likelihood that oil tankers will leave some Indonesian ports full of (subsidised) fuel worth $millions, and mysteriously arrive at other Indonesian ports nearly empty – which would also definitely reduce the amount that the government spends on fuel subsidies.
The upcoming election is also having a major impact on other financial activity in and around Indonesia – the stock market is registering sizeable movements every time significant new information is released (as you would expect), and there’s an awful lot of projects, mergers, and acquisitions which are ready to go – but not until the July vote has passed without any nasty surprises.
One such project is an Initial Public Offering (IPO – stock market listing) later this year that we’re involved with, and for those of you who have the ability to invest $1million or more, you can get in on the action by lending pre-IPO finance for the transaction, which will pay a fixed return of 10% for a 4-6 month loan – fully underwritten and secured by a large Indonesian financial institution. Details are still being finalised, but if you’re interested in being involved, just let me know.
For those of you who don’t have the luxury of a spare $1million lying around, we have another opportunity, with a much lower minimum investment of just $10,000. It’s from Makati Capital Partners (MCP), which is the rebranded name of Pilot Asia Capital’s merchant banking division - the same team that executed the Indonesian land transaction deal last year. Read previous blog posts for more info on that, the only “news” is that it returned all capital and fixed interest of 15/17.5/20% to investors early this year – slightly later than the expected duration of 9 months, but well ahead of the contracted duration of 12 months.
The new opportunity is a 3-year convertible bond – which basically means that you’re lending money to the company (secured on assets), with the option of converting to equity (shares) in MCP at the end of the 3-year term if you wish. The annual return is a fixed 12.5%, and any conversions to equity will be done at a 30% discount to the prevailing market price for the shares, thereby returning a total of 67.5% over just 3 years, which is not bad at all. If you’d like to know more, just let me know.
Finally, something which might interest you and/or entertain you for a bit – we’ve now launched our own investment platform, which means that people who want to manage their own investments can do so from one place – www.imperiuminvestmentplatform.com
It gives you access to over 7,000 international and offshore investment funds, from over 200 fund managers (including all the big banks you know and love), detailed analysis from the worlds’ largest fund ratings agency, and a very comprehensive search facility to find exactly what you’re looking for.
If you click on that link above, and go to the “getting started” tab, you’ll be able to quickly open your own demo account – which means that we’ll give you some pretend money, and let you play with it as if it was real money. Ever wondered if you could do a better job at managing money than the professionals? Here’s your chance to find out, completely free. You can of course invest real money if you wish!
That’s all for this post – thanks for reading. If there’s any topics you’d like to be covered in future posts, or anything finance-related you’d like to discuss privately, please just get in touch - I’d love to hear from you.
Have a great week!