After what appeared to be a tit for tat battle between Guernsey and HMRC the UK tax authority had the last say as it quite often does. As previous posts highlighted the changes had proposed that residents and non-residents within a jurisdiction should be subject to the same tax treatment on pension schemes. This was clearly not the case in Guernsey, so the channel island centre questioned the intent of this revision and when answers where either unclear or not forthcoming they decided to issue a preemptive strike by revising the pension legislation within the jurisdiction. A new pension class for Guernsey was created which attracted no tax relief on contributions though it provided benefits tax-free on drawdown, Crisis averted, problem solved!

Or so they thought and it would appear that they underestimated the shear will and ability of HMRC to get their own way come what may. What followed was a display of this with HMRC using discretionary power to remove the vast majority of Guernsey schemes from the revised list of approved QROP providers simply because they had reservations over the legislation that Guernsey had introduced. Guernsey was the biggest QROPS centre and HMRC were not happy about the amount of pension money leaking out so it would appear that they have got what they wanted one less jurisdiction to worry about and for the time being a reduction in the pension funds haemorrhaging out of UK schemes.

The good news for those who have moved their UK pensions to Guernsey under previously approved schemes is that there is no impact to them and the day to day running will continue as they were. It does mean though that as things stand then there will be no more pension transfers from UK schemes under QROPS legislation to a Guernsey based scheme.

So is this the end of QROPS? Far from it, as it would appear that the next port of call for the QROPS industry is Malta. Some providers have been more prepared than others and had set up alternative arrangements already whilst others are scrambling to get things set up.

Gibraltar may also be a jurisdiction, which starts to garner popularity though it would appear that Malta has the upper hand at the moment. One thing is for sure is that with QROPS essential being a European Union initiative Malta being a member state will make it much more difficult for HMRC to close down as they have done with Isle of Man and Guernsey.

Though never say Never!

Well one option could be a structured product. These are investments which have an underlying asset that provides the growth element mixed with some kind of capital guarantee for the return of all or a proportion of capital irrespective of the investment performance. Structured notes can come in many shapes and sizes offering differing degrees of capital protection, infinite choices of underlying assets and various levels of growth potential. Here are two very different options that we found interesting and thought we would share.

Quantum Plus 8 from Standard Bank

This is a structured product which has two distinct parts to it the Quantum element and the Plus component each of which receives a 50% asset allocation from the amount invested.

Quantum is a 1 year term deposit which returns capital and interest at the end of this time. The Annual Equivalent Rate (AER) depends on the investment currency (US dollar, Euro & Sterling 4%,  Australian dollar 10% & South African rand 15%) though they do offer an extremely competitive rate in each currency.

The plus portion of the investment is placed into a market index which is determined by the initial currency choice for a period of five years. At the end of this time initial capital is returned along with either 60% of the market performance or a 5% bonus (0.98% AER) whichever is the greater of the two. The investment indices are as follows:

The US dollar is the only currency which provides a choice of index between the large cap more diversified S&P 500 or the emerging market option of the S&P BRIC 40 (Brazil, Russia, India & China). The most interesting element for the cautious investor is the fact that it provides a minimum return even if markets don’t perform equivalent to keeping the money in the bank.

Qantum Plus 8 is available for subscription until 12th May 2012 with the investment start date of 24th May 2012. The quantum deposit matures on 24th May 2013 and the plus ends 24th May 2017 with a maturity date 0f 31st May 2017.

Athena Guaranteed Series 2 Ltd from Man Investments

Athena is the original capital guaranteed structured product launched by Man Investments back in 1990. There have been many other structured products over the years since then from Man Investments and to celebrate the 25th year of AHL they have decided to launch a second series of this investment icon.

The original note has returned on average 12.8% pa over the past 21 years and a total return over that time of 1163.7%. Between 1st July 2007 and 28th February 2009 Athena returned an impressive 26.1% as opposed to world stocks which delivered a loss of around -49%. This time around the capital guarantee is provided by UBS which is 100% of capital invested at maturity on 27th November 2023. Athena can be sold prior to this time though the capital guarantee will not apply and current market value will be received.

Athena has an impressive investment pedigree through periods of economic prosperity and hardship and whilst it may not appeal to the more conservative investor it certainly should to those looking for excellent growth potential with limited risk.

Athena is available until 23rd April 2012.

Both of the above can be accessed directly or through Life Company Portfolio Bonds and if you require further information please feel free to contact us.

Figures for Athena Guaranteed provided by Man Investments.

One very interesting fact that I’ve gleaned from this book is that since 1800 Greece has been in a state of default for 50% of the time. So it is hardly unreasonable to assume that this situation was going to arise again at some point in the near future and if you had placed this bet with a bookmaker then you would have probably got short odds. So how did the international banking community come to the conclusion that it made sense to lend money to Greece at the exact same rate that it did to Germany and France?

Following on from news of the latest bailout I read this interesting article from Roger Bootle and thought that I would share it with you:

http://www.telegraph.co.uk/finance/comment/rogerbootle/9107068/It-may-well-turn-out-that-we-are-watching-not-a-Greek-but-a-euro-tragedy.html

Please let us have your comments we’d love to hear from you.

So what does this mean?

Well simply put if you are setting up your plan on an underwritten basis you declare your medical history (as you should always do) in as much detail as possible. The insurance company then considers this in detail and then if there are any conditions that need to be applied to the plan such as exclusions or loadings for pre-existing conditions you will be informed. You will then need to accept these conditions for the policy to become active which means that you know exactly where you stand and what you are covered for and what you’re not.

On the other hand coverage that is set up on a moratorium basis has a similar initial process which is you complete the application and declare your full medical history. This time the insurance company sets your cover up immediately without any comment on your medical history. The issue is that when you come to claim for treatment then the claim can be denied due to a preexisting condition, which is the only time that you would be aware of this situation. This can lead to some very stressful moments especially if you are being admitted as an inpatient and discover you have to foot the bill.

In our opinion setting up your coverage on a moratorium basis can lead to a great deal of disappointment and just because the insurance company doesn’t raise any questions there are no exclusions to the coverage. We feel that it is better to know upfront exactly what you are covered for so always request that the cover be established on an underwritten basis and establishing cover on this basis means that you will be made aware beforehand. If the company that you are looking to use only provides cover on a moratorium basis then find another provider.

Geographical Area of Coverage:

Most international plans have some restrictions on the area of coverage, whether that comes in the form of limited coverage in a particular jurisdiction or a complete exclusion. Therefore it is important that you understand what these are and how they apply to you. For example if you go on holiday every year to Florida and your policy provides no coverage in the United States, Canada and the Caribbean then you are exposed every time that you go on holiday. You should consider amending the plan if possible, changing to an alternate provider or taking out a travel insurance that will bridge the gap.

Generally the biggest exclusion is with the United States, Canada and the Caribbean, though there are some others that can result in a bigger excess payment or higher premiums. Some insurers may not allow coverage once you have repatriated to your home country which can cause issues if you have developed a condition that would not be covered by a new insurer should you have to find one.

The portability and jurisdiction of coverage can be extremely important so think about what you need and then check that your policy does exactly what you want.

Complications of Pregnancy Definitions:

If you are looking to start a family and are searching for a policy that will provide coverage for the expenses then one important area to consider is how the insurer defines complications of pregnancy. This may seem to be a small matter yet it is an area that can make an enormous difference to a family.

Some insurers will only provide treatment to the expectant mother should the pregnancy encounter complications. This means that no attempt to treat or save the unborn fetus will be made and the costs that will be covered will be for the mother and the termination of the pregnancy.

Other providers will provide treatment for mother and unborn child should the situation require. This is a big difference for any couple that is looking to start or extend their family.

Make sure you ask your provider for the definitions of complications of pregnancy and if you are still unclear ask questions on how these would be applied in specific scenarios.

Congenital Condition Cover or Automatic Acceptance of New Born Babies:

Following on with the pregnancy theme this is another important factor that most people understandably don’t consider and can cause an enormous amount of stress.

If a baby is born with a congenital condition such as “Down Syndrome” for example then the health insurer may provide coverage under a new born benefit for a limited period of time (i.e. as specified by the individual policy) this may be 30, 60 or 90 days. After this time unless there is a congenital cover or automatic acceptance of the new born benefit the insurance company will more than likely refuse to accept the baby onto the policy and therefore provide no further coverage.

The issue then becomes finding an insurer who will accept the baby, which is almost impossible to do from a private sector provider. At this point the only alternative would be to look towards a state provider though with the exception of the French system I am unaware of any other state scheme that provides coverage for their nationals living overseas. Usually congenital disorders mean regular visits to the doctors and big medical bills.

If this is something that concerns you and it certainly should be considered for older couples thinking about having children and couples who are aware that they have a history of congenital disorders in their family then you need to look closely at your health insurance policy.

The good news is that there are some policies that provide for this eventuality and will either provide a lifetime limit for the baby or automatically accept the baby onto the policy providing that the application is made within a certain time frame without exclusions. The bad news is that these types of policy tend to be the higher end of the market and thus have higher premiums. Having said this what you will save in the long run would be substantial and certainly make life much easier and secure.

Direct Settlement of Claims:

This may seem like an obvious one and I am sure that it applies to most international policies these days but direct settlement of inpatient claims is essential. If you have to foot the bill first and then claim it back after you have been admitted to hospital then you seriously need to consider changing providers.

Most international providers have a reclaim policy for outpatient and GP visits and this is OK, as these expenses tend to be relatively small compared to inpatient procedures.

The general procedure with most policies is that if you know that you need to be admitted to hospital then contact your provider and get them to pre-approve everything with the facility before hand. If you admitted with a medical emergency then the provider will have a 24-hour line that the hospital can contact so that they can approve the treatment. Some health insurers will have pre-approved medical facilities that they deal with and this can make the process even smoother though it can also limit choice.

Another option that involves you financing things first is not an option at all.

Retiring Overseas:

If you are going to retire overseas then in most cases depending on where you retire you will more than likely need some form of health insurance.

Any expatriate who has worked overseas for a number of years and intends to stay overseas when they retire will probably have enjoyed coverage under a company scheme. Assuming that this has been a happy experience and you’ve been provided with comprehensive coverage then the first piece of advice would be to check with the employer and the provider whether you can stay with the scheme and cover your own premiums.

There are two benefits to doing this firstly, any preexisting conditions that you may have developed over your time with the company and the scheme will still be covered whereas they wouldn’t if you established a new policy with the same provider or another insurer. Secondly, premiums on group schemes tend to be lower than those for individual applicants due to economies of scale from having more members under a single plan.

Let us assume that this is not possible or you are retiring overseas after working in your home country and you don’t have access to an international corporate healthcare plan then there are certain things that you need to be aware of.

Firstly if you have any preexisting conditions the likelihood is that you are going to have to foot the bill for any medical expenses relating to these yourself. Secondly make check the age of admittance for a provider whilst some have no age barrier to entry others will have an age limit for new applicants of 64. Next check on the age limit for coverage, again some providers will continue to provide benefits indefinitely whilst others can have an upper age limit.

Finally if you have set up a plan before you retired and increased the excess level so premiums remained low be aware that any preexisting condition that occurred whilst the plan has been established will more than likely be subject to the higher excess level.

Children’s Discounts:

If you are looking to provide cover for your family whilst you are overseas then you need to check which provider offers you the best coverage options and provides you with the best value for your kids.

Again plans vary a great deal and are designed to cater towards different sectors of the market. Some providers offer little if any discounts for children and these can be quite expensive for a family. Others will offer reduced rates for children below 18 and further discounts for each child up to a maximum discount for three kids. Others offer free coverage below the age of 11 for a maximum number of three children and then reduced rates from 11 to 18.

Choose An Excess That Suites Your Needs:

Most policies and certainly all policies that cover outpatient costs will have an excess on the policy. This will have different forms and may be on a per claim basis, it could be an annual amount that once surpassed claims will be made or an annual amount on outpatient claims only. Whichever form it takes you will need to pay so much towards some of your medical expenses.

If you decide that you are prepared to pay more towards your healthcare bills and self insure for the small stuff then your premium will reduce the more you are prepared to pay the cheaper the premiums get. This can get quite expensive especially with a per-claim excess and you could end up regretting it.

The level of excess that you are prepared to take is very subjective, individual views differ greatly and there is no right or wrong answer. Personally I prefer minimum excess and claim because generally health insurance doesn’t have a no-claims bonus.

Before you set up your plan think about what you want and can afford and decide how much excess you are prepared to take.

Make Sure That You Are Not Paying For Options That You Don’t Need:

Lets say you want to have routine dental covered on your health Insurance for your two kids, wife and yourself this could mean that you also end up paying for maternity cover for all four of you. This is due to the fact that Health Insurers sometimes bundle higher end benefits together in a rigid framework, which may be done intentionally who knows (there’s the cynic in me). With this example it would probably be best to drop down a level and fund dental treatment, as the cost of the extra benefits (i.e. maternity) would cost more than paying for trips to the dentist out of your own pocket.

The other option is to look for a modular plan that allows you to add on and take away as each member of your family requires. Generally the modules can take the form of routine dental treatment, maternity, holistic/alternative medicine or repatriation to name a few. This option can mean that each member of your family has coverage to suite their individual needs.

Weigh up the plan that you are considering highlight any benefits that you don’t need and assess how much this is costing you over and above taking a lower level plan. Then you can determine whether it is better to self-insure for these options, take the higher plan or find a modular provider that allows you to mix and match.

Cheap is Rarely Good Look For Value Instead:

We have come across people who pay less than US$300 per year and expect that they have adequate coverage in the case of a medical emergency. I understand that these people have worked hard for what they have and that they want to hold onto it. One sure fire way to lose a big chunk of your wealth is to foot the bill for a serious medical condition and you know what you are more likely to experience this scenario than you are to pop your clogs, which is why critical illness/trauma cover is more expensive than life insurance.

Sometimes it is probably a case of getting something that gives some peace of mind, which we understand and still feel that it is false economy. It doesn’t have to be the most expensive coverage that you can find and you know what, there are some very well priced plans that provide more than adequate cover. So please check what your plan really gives you find out what things cost with regards to treatments and see if you are covered or if you will be left short.

In most cases with health insurance the old adage “You Pay for What You Get” is applicable.

We hope that this has been useful for you and please let us know your thoughts or if you think that there some other important points that we have missed.

If you need help setting up a healthcare insurance plan for your family, company or yourself then please feel free to contact us and we will be happy to be of assistance.

http://www.nytimes.com/2011/12/19/opinion/krugman-will-china-break.html?_r=1

Let us know your thoughts or if you have anything to add.

These proposals will require resolution by the States of Guernsey which should happen in early March. After which a new pension regime will be introduced that is open to both Guernsey residents and non residents. The new rules provide no tax relief on contributions though they do mean that benefits will be paid free of Guernsey tax. It is anticipated that existing schemes will be transferred into the new regime meaning that they remain compliant with the new proposals from Her Majesties Customs & Revenue (HMRC).

GAPP have been known to have raised concerns over the proposed changes and in particular “Condition 4” with HMRC. They had requested that some of the changes be deferred for further consideration. Whether this means that HMRC are sticking fast to all of the proposed changes, then we cannot be sure though it does indicate that Guernsey is not taking any chances and intends to remain a leading player in the QROPS market.

It is also interesting that the importance of the Crown Dependencies to the City of London which was recently highlighted in the Foot Report could be lost if these centres have issues with compliance due to the proposed HMRC changes. So the changes will mean that funds continue to flow into the City from Guernsey based QROPS.

These changes come as no surprise and we are sure that there will be new announcements from other jurisdictions and HMRC in the near future.

It has long been understood that HMRC would not tolerate “Pension Scheme Busting” where the pension fund is transferred into a QROPS and liberal interpretations of the legislation by the scheme administrators gives the member their whole fund in cash. This has been made evident with the ongoing issues with Singapore schemes and what would appear to be an intention to pursue individuals who liquidated their schemes. Concerns that this may still be continuing with New Zealand schemes have been thought to be a major consideration in the proposed changes in legislation with a view to making scheme busting as difficult as possible.

So what are the new proposals and what impact could they have for current QROPS members and future transfers? Well let’s take a look.

The main changes in the HMRC draft proposal are:

to impose substantial additional reporting and notification requirements, in particular an extension of the period in which a QROPS must report benefit payments to HMRC to the later of:

the expiry of five tax years after the tax year in which the member ceases to be UK resident (current requirement); and

ten years after the transfer payment to the QROPS is made (new requirement);

a new requirement for a prospective QROPS member to give a written acknowledgement to their UK pension scheme administrator (to be forwarded to HMRC) that the transfer payment overseas will be subject to an unauthorised payment tax charge if the receiving scheme is not a QROPS;
to require a QROPS jurisdiction to give the same tax exemptions in respect of benefit payments made to members who are locally resident as to members who are non residents;
to require a QROPS always to be recognised by the local tax authorities as a pension scheme;
to limit the scope for transfers to New Zealand pension schemes: the rules of a New Zealand pension scheme (other than a KiwiSaver Scheme) will have to impose various restrictions on the benefits that can be paid.

It would appear that most of the above will simply add to the administration burden for the scheme trustees the intention of HMRC is to make pension busting a much more difficult proposition. The proposed change which jumps out is c) as it could have connotations for anyone who is not resident in the same jurisdiction as their QROPS which is probably the vast majority of schemes. This possible change seems to leave people questioning what is the intention of HMRC in proposing it as they would not benefit from the tax revenue levied in say Guernsey or the Isle of Man. This could mean the possibility of a withholding tax being levied on benefit payments where resident members of a jurisdiction are taxed. Another interesting point here is that this proposal seems to benefit New Zealand schemes who have no tax on benefit payments which is ironic considering much of the focus of this draft legislation is aimed and stopping pension busting in this jurisdiction. Needless to say the result has been strong lobbying from the QROPS industry, offshore centres, rumours of proposed legislation changes in numerous offshore jurisdictions and the emergence of Malta as a possible jurisdiction of choice for the future.
It is not expected that the the tax changes in point c) will be imposed retrospectively though it would seem that the extended reporting period will be. It is also important to point out that HMRC clarified that 30% is the maximum drawdown though this could be impacted by the longer reporting rules which means that the QROPS will be subject to Uk legislation longer than the current 5 year rules.

Having said all this the proposals are draft legislation and we are still in a consultation period which ends on 31st January so things could change before the intended introduction date of 6th April 2012.

Interestingly enough the announcement from HMRC that “QROPS are only for individuals leaving or intending permanently to leave the UK.” holds firm with our own opinion that if you wish to consolidate your pensions into a more flexible structure and you could be heading back to the UK then a Self Invested Personal Pension (SIPP) may be a better option.

We think that one thing is for sure, that is the days of “pension busting” are numbered and if you have taken 100% of your benefits as cash through one of these schemes then don’t be surprised if you get a call from the UK Tax man.

Our aim is to provide you with relevant information that is applicable to expatriates and overseas residents of all nationalities. We intend to highlight changes in legislation that could have an impact on your lives. We also want to bring expert opinion on market outlook, areas of opportunity and the impact of current events. We will also focus on new product launches and review old favourites.

We want to tap into the expertise of multiple sources both internally and from external partners showing you multiple perspectives on financial planning.

All in all we aim to provide you with a comprehensive resource for offshore financial planning and we welcome your feedback and comments.

So please continue to join us.