17th April 2011
There has been plenty of positive feedback to articles in last month's "Networth" relating to the "centenarian club", and planning for financial independence. Many questions have been posed and several individual discussions ensued.
The circumstances of individual expats are unique and not directly comparable, however, some of you have raised similar concerns. Here are some of the major topics that have been raised.
PROFESSIONAL ADVICE
Some of the discussion has related to making the most of your investments and whether to do this alone or to engage a professional. A key question here is whether you have the time or genuine interest needed to manage your portfolio. When you engage a professional, you need to undertake due diligence on his ability and his firm's stability and reputation. If the adviser is patient and does not bombard you with products, that is a good start. An adviser should seem to want to genuinely wish to help you in all aspects of your affairs. The business of living life is not just about investments and pensions. It covers many aspects and they all need to be carefully coordinated.
In agreeing on a strategy with your adviser, you should ask yourself if he is offering you genuine independent advice about diversification. Does he discuss holdings in cash, equities, dividend generators, investment trusts, property, alternatives and gilts? Does he assist you with other areas, such as investment properties, and how they fit your overall plan even if these are not actually part of his brief? Does he try to assist you with these areas even though he may not generate income for himself? If so, you may have found a gem you should hold onto.
MEDICAL INSURANCE
You can still secure medical insurance even if you are in your sixties. It is possible to enrol in a specific international scheme, in Thailand, until you are 73 and continue renewing annually. Most expats are unaware of this. Of course, the premiums are high, which is understandable when you consider the risk. However, many sensible expats realise that they can afford "everyday" medical expenses such as sundry doctor visits and even the occasional hospital stay, but what is of great concern is the catastrophic medical condition. The dreaded big C; a heart condition requiring major surgery or an organ transplant could be unaffordable.
Medical insurance can be arranged to cover expenses in excess of certain agreed limits. Known as deductibles or the amount of excess you pay for a claim, these can be chosen by you and are often extensive. For example, you can choose to cover the first US$10,000 (301,000 baht) of any claim. This makes your insurance premium significantly lower but you can only claim an amount above this exclusion. If the costs of a complex claim were substantial, you would be thankful you took the insurance.
PENSION VEHICLES
Many expats wonder how they should organise their affairs to keep their pension assets growing and simultaneously paying a regular income. There are a number of options. If you have a formal employer pension, regular payments are often made automatically.
If your employer arranged a defined contribution occupational scheme, you will likely receive a lump sum when you reach the defined retirement age rather than a regular pension. It is then up to you to arrange your own payments from that lump sum. If you simply deposit the cash into a bank account and make withdrawals, it is unlikely to keep up with inflation, let alone generate income.
There are investment vehicles that offer a portfolio investment and the ability to make regular and ad hoc withdrawals. This gives you the benefit of investment returns rather than bank deposit interest and a regular income stream that would be paid to your bank account.
These vehicles are called offshore personal portfolio bonds (OPPB) and can be arranged through investment institutions in tax havens. They need to be managed and an independent adviser can help in this regard.
Qualified recognised overseas pension schemes (QROPS) are commonly invested in OPPBs. These schemes are created from UK deferred pension benefits being exported when a member has left the UK, with no plan to return. There are many advantages to having your pension transferred to a QROPS and once again a professional adviser can assist with obtaining a transfer value from the UK and giving you comprehensive advice about whether you should consider the transfer.
OPPBs are often dismissed as expensive to run. However, when you look at the net results, this is rarely the case. They will usually beat any bank return and after charges will give you good value growth. These vehicles are useful to help create and manage your wealth prior to retirement, so they are very good lifelong vehicles.
TAXATION
This is always a tricky subject to discuss in a generic way. Every person has different circumstances. There are also many common areas that need to be studied such as your nationality where you are domiciled; where you are resident and where your assets are held. Imagine someone born in the UK of Dutch parentage, with British and Australian passports, living in Thailand with a QROPS pension in Guernsey, an OPPB in the Isle of Man, bank accounts in Jersey, property in the UK, Singapore and Australia, investments in Hong Kong and insurance in Luxembourg. This can be quite complex to analyse for tax purposes.
Apart from the tax on income from properties, pensions and investments, there is also capital-gains taxation, and inheritance tax advice. If these are concerns for you, choose a professional adviser who can advise on tax as part of his overall service.
The business of living life can get complex for the expat although many do not realise this until it is too late. The more perceptive expat always makes appropriate arrangements and takes ongoing advice throughout his life abroad.
There is great peace of mind in knowing that you have dealt with these important issues while you are alive and that they will be handled properly after you have gone.
We will continue with more on these matters next week.
