Mass evictions and a new mortgage crisis in Europe - another warning sign for expats

A new austerity driven mortgage crisis may be on the horizon in Europe. The Financial Times reports today that Ireland faces a new mortgage crisis that could trigger mass evictions and jeopardise the stability of the country's recovering economy. The FT reports that the struggling mortgage holders in Ireland face the threat of eviction following Dublin’s decision to lift a ban on house repossessions. "The contentious change of policy on repossessions was sought by the troika of international lenders – the EU, European Central Bank and the International Monetary Fund – which had warned that the escalating mortgage crisis was jeopardising Ireland’s fragile economic recovery."  A couple of weeks ago, the Mirror had reported that the UK Government’s welfare cuts will suck £19 billion a year out of the UK economy citing a study by the Sheffield Hallam University. According to the study Northern families in Blackpool, Middlesbrough, Liverpool and Glasgow will be hit hardest – and wealthy southern areas such as Surrey will see the smallest financial loss further exacerbating the North South divide. This serves as an advance warning of the shape of things to come (see video) and expats are urged to make investments in assets denominated in the right currencies and to have investments in the right locations and to have the right assets in their portfolios.

Robert Prechter, Socionomics expert fears a historic sentiment so extreme it happens "only once in centuries"

Robert Prechter did not invent the Elliott Wave principle, a technical tool for analysing markets  but he certainly has made it famous in Socionomics and through its use in making his market calls which he gets right occasionally. He also writes books and publishes a periodical called the Elliott Wave theorist. An article in the latest (April 2013) issue of the Elliott Wave theorist had me sitting up and taking notice because of a claim it makes that is so outrageous it at least deserves mention, well, in a blog piece anyway. In this article, Mr. Prechter argues, that not a single investment market – be it bonds, stocks, real estate, commodities or precious metals – stands anywhere near a major bottom today, this claim is ok so far, I agree with this part. Its the next statement that is jarring "Every one of them continues to show characteristics of being on the left or right side of a historic top of sentiment so extreme as to occur on average only once in centuries". Mr. Prechter has cited the example of Cyprus when the debt pyramid imploded: "the only valuable asset is cash; if you have it, you are king; if you don’t, you could starve." Either this is fear-mongering designed to sell more of Mr. Prechters' books and periodicals or perhaps there is a genuine warning about an impending implosion in all the investment markets in the near future. Mr. Prechter himself readily admits that he mistimed this call three years in a row but now seems fairly convinced that this "once in centuries" implosion is lurking around the corner.

British Baby boomers need to plan for loss of entitlements as they age

YC45W73DVK8Z Fareed Zakaria, who has his own syndicated show on Sundays on CNN had an interesting take on changing population demographics in the US and their political effects a couple of weeks ago (see video). Last year, Mr. Zakaria wrote a similar article in Time magazine, on the works of Mr. Pete Peterson, a banker and private equity billionaire. In that article Mr. Zakaria presented Mr. Petersons' overriding concern that the long-term outlook for the US economy in the form of massive structural deficits as the baby boomers start retiring in large numbers should be tackled by massive austerity and debt reduction programs. Mr. Peterson apparently confided to Mr. Zakaria, "I want to strengthen the safety net for the poor. But to do so, we have to reform entitlements, because they are simply not sustainable in their current form," Peterson says. "The elderly population is doubling, and health care costs are rising rapidly." His foundation is making the control of health care costs its No. 1 priority. "But we need to start making changes soon, because the longer we wait, the more painful will be the eventual changes".

The exact same arguments apply in equal measure to aging Britons looking for safety nets in their advancing years. Given the current debt load of the UK, it is inevitable that pensions and entitlements will take a hit in the coming years. All the more reason to have QROPS, QNUPS or offshore bonds to plan for a more secure retirement in the face of  eroding state benefits.

QNUPS vs. QROPS vs. Offshore bonds - how do they differ?

Pensions are a prime concern not only for British Expatriates working overseas but also for UK Resident/Domiciled individuals who may have already utilised their maximum income tax exempt pension contributions. The pensions industry is full of jargon and abbreviations and as a Professor, I naturally want to explain them as simply as possible. Qualifying Non-UK Pension Scheme (QNUPS) are an offshore pension scheme for new funds or assets that are separate from your current pension scheme. A QNUPS does not require approval or reporting to Her Majesty's Revenue & Customs, unless assets are transferred to it from an existing UK authorised pension scheme. The main advantage of a QNUPS is that any funds invested immediately sit outside of Inheritance Tax (IHT), without needing to wait seven years and will grow tax free. There is no age restriction on when you have to stop investing, Income can be taken from age 55 or it can be deferred until age 75. Upon death, the funds and assets you have left within a QNUPS are free of IHT, allowing your beneficiaries to receive the proceeds tax free.

Qualifying Recognised Overseas Pension Schemes (QROPS) on the other hand has to be approved by Her Majesty’s Revenue & Customs to accept pension transfers from an authorised UK pension scheme. A QROPS offers enormous financial benefits for people of any nationality, who have accumulated a UK pension fund and are now living or planning to live out their retirement outside the UK.

An offshore bond on the other hand is essentially a life insurance policy specifically structured as an accumulation vehicle that upon death, passes on the proceeds of the policy plus an additional percentage amount to beneficiaries. An offshore bond is normally used in conjunction with a Discretionary Trust for IHT planning.

Mr. Goldfinger gets bitten by Mr. Market

In the classic James Bond film "Goldfinger", the villain (Mr. Goldfinger) professes his love for the yellow metal (see video clip) and claims to get to into any enterprise that will increase his stock. There have been many such Goldfingers who were happy to ride the price wave of Gold until the massive drop of over 9% this week shattered their confidence in the yellow metal. Many of my clients have sent me panicky emails asking if they should dump the metal. Gold is only a holder of value and does not give dividends or interest, so when this perceived value is lost, pandemonium is primed to ensue. The best strategy is to wait out the downturn and do absolutely nothing. Perhaps the classic dialogue between James Bond and Mr. Goldfinger can be reworded thus: "Do you expect me to Sell?". "No, Mr. Bond, I expect you to Hold".

The future of tax havens and how it affects Britons working overseas

The Economist magazine ran an excellent article this week on the new business model that offshore tax havens are considering  in face on an ongoing onslaught by aggressive tax agencies in the US and EU. From Cyprus to Liechtenstein to Cayman Islands to the British Virgin Islands and Cook Islands, the offshore tax havens are regressing with the latest tax haven to give up bank secrecy being Luxembourg. Pressure is also growing on Austria and it may be a matter of time before Austria too gets tax religion. Funnily enough the best and safest offshore tax havens happen to be right under the very noses of the most aggressive tax agencies - the US State of Delaware and the UK offshore islands of the Isle of Man and the Channel Islands.

As British expats look for opportunities outside UK, Britain looks set to be deluged by immigrants

As reported by the Telegraph today, Britain's ministers have no idea how many new Eastern European immigrants will come to the UK next year. According to the Telegraph (which I am now reproducing here verbatim), "a specially-commissioned study by a research group suggested that Britain is woefully unprepared for the ending of migration restrictions later this year suggesting that any influx of Romanians and Bulgarians could put a strain on schools and be made worse by the economic crisis in Italy and Spain. The National Institute of Economic and Social Research was asked by the Foreign Office to examine the “potential impact” of migration from Romania and Bulgaria, who joined the European Union on 1 January 2007. According to a British Labour Force sample survey, there are currently 26,000 Bulgarians and 80,000 Romanians living in the UK, but the actual numbers could be larger. The Niesr report also warned of the impact on the UK and the likely “pull” factors which could drive them to the UK, including:
• continuing economic problems in southern EU countries like Spain and Italy could mean that more Romanians and Bulgarians migrate to UK next year;
• Romanians and Bulgarians might be tempted to come here because they earn 40 per cent less than people in Britain and other European countries;
• Romanians and Bulgarians are most likely to settle in the south east of England – rather than fan out across the country as the Poles and others did after 2004;
• pressure on public services is most likely to be felt in primary schools – where there is already a severe forecast shortage of spaces. Figures show more than 800,000 extra places will be needed in state-funded nursery and primary schools by the end of the decade.
Earlier this month Professor John Howson, senior research fellow at Oxford University, said the shortage of places for five-year-olds was the “biggest problem” facing schools in England."

Who reads the Financial Times? - The people who own Britain

Where do you get your financial news from? Do you consider the Financial Times to be the main source of your financial information? If Jim Hacker who plays PM in the Yes Prime Minister series is to be believed, the Financial Times is read by people who own Britain!

Retiring after living in multiple jurisdictions

The typical British expat who lives in more than one jurisdiction makes pension contributions to pension authorities in more than one jurisdiction. If the jurisdictions are within the EU and the UK has social security agreements with those member states, then arranging retirement in either jurisdiction is fairly non-trivial as the video clip above shows. If at least one of the jurisdiction lies outside the EU, or you wish to retire to a location outside the UK, it is best to go with a Qualified Recognized Overseas Pension Scheme (QROPS).

Top destinations worldwide for British expats

The Guardian published a list last year for the top destinations for British expats worldwide (see the list below). But as the news clip from Sky News suggests not all destinations turn out to be paradise. Yet the Home office figures show that close to 4.7 million British subjects live outside of Britain with Australia and the United States making up more than a quarter.

Top 10 destinations for UK expats*

Australia 1,062,000 (251,000)

USA 829,000 (140,000)

Spain 808,000 (104,000)

Canada 608,000 (157,000)

Ireland 289,000 (126,000

France 253,000 (57,000)

New Zealand 248,000 (54,000)

South Africa 219,000 (38,000)

Germany 97,000 (39,000)

UAE 65,000 (680)

*Table shows numbers of expats in each country, and in brackets the number of pensioners

Source: IPPR, DWP.