World Bank Seminar script. Slide 1 Introduction Peter Dinsdale is an World Bank retiree with experience of retiring and returning to the UK having sold up in the US and jumped through all of the necessary hoops. He has property in the UK including a property which he lets. Peter is a still a short-term consultant with the World Bank and has other business interests. He is Director of a limited company and President of a Professional Institute, which is also a UK, registered charity. Steve Danson is a Chartered Financial Planner with nearly 25 years experience in financial services and nearly 14 running his own businesses. He is a Fellow of the personal finance society and provides independent financial advice to business owners and other individuals. I hope you will find today s session to be an interesting, informative and useful presentation on a range of topics relating to World Bank employees leaving the U.S and retiring to the UK. What we are trying to encourage people to do: in advance of returning to the UK Is to really sit down and consider what needs to be done now and what needs to be done when you return to the UK. Slide 3 then 4 Everybody s ideal retirement is different. Clearly, the cost of a modest retirement is going to be less than a more ambitious one. The key is to be able to estimate the rough cost having worked out the likely after tax pension and investment income. Slide 5 Agenda At Banks Wealth Management, we specialise in retirement and investment planning with regard to taxation issues. We help people to build wealth and then to extract or pass on wealth in the most efficient ways and as intended. Slide6 Issues to address Peter
You are coming up to retirement now and will have various ideas of what you want to be doing when you retire. Different aspirations have different financial requirements. Slide 8 The Old Bank This is a picture of our office in Lancashire. Some people find the subject of pensions and investments to be a bit dry. I find it very interesting and love discussing it, reading about it listening to it and speculating upon it which is why I have studied it to the level that I have, which puts me in the top few in the UK as a fellow of the personal finance society. Our company slogan is Think Ahead that is what we want our clients to do in terms of retirement, tax and investment planning. We want to prompt people to avoid leaving their future to chance. Today s seminar is very specifically about giving you all an overview of the sort of things that you may need to think about both now in the lead up to your retirement and when you start your retirement in the UK. My clients vary in experience and interest in financial matters. Some are at the top of their field in what they do but do not have an interest in knowing about the ins and outs of taxation and finances. However, they do want to make sure that someone has a handle on that for them. Although some of your concerns are common with your colleagues, other concerns are specific to you. Slide 9 Example. So I d like to show you an example. Mr Jones aged 58 Married with 2 children. Has had heart problems. Mrs Jones only has a small pension. House owned in the US & UK World Bank employee for 10 years Retiring in 2 years Planning to go back to the UK in two years UK based investments Deferred pensions from previous jobs Does not intend to continue to work after 60 Would like to purchase a holiday home. Could inherit from parents in the future.
Slide 10 If it were me I would want to know: How much Pension will I get at retirement after tax? Will this give me enough to do all of the things that I want to do in retirement? What will my outgoings be? Is this income guaranteed or is there some element of investment risk? How much tax will I pay on my income? What will my outgoings be? Is it enough? What about inheritance tax? If I die first, will my wife have enough money to live on? Can I generate an income from my investments? Are my investments invested appropriately given my pending retirement and future needs? Does my Will cover all bases? Slide 11 I will be covering taxation including latest budget changes, pensions investments and portfolio management, and Inheritance tax As Peter said, he will be giving you his experience as a World Bank Retiree who owned and sold property whilst employed by the World Bank and has become a landlord in the UK as a result of our slow residential market. Slide 11 Things to consider Things to Consider Here is a list of some of the things to consider Tax in the UK and the US. What tax will you pay before you leave, what will your tax situation be when you return to the UK. More importantly what will your net income be? Have you considered what your outgoings are likely to be? Do you have separate Will s covering UK Assets and Foreign assets? Have you thought about Inheritance tax? Do you expect to inherit? Can you afford to gift money/assets now? Health The possible need for funding long term care for yourself or a family member in the future.
If you are a member of the World Bank medical insurance scheme, will you consider retaining the cover/changing or scrapping the cover? I am told that the World Bank Medical Insurance is subsidised and that HMRC requires you to pay tax on that subsidy. You should factor that in to any decision making process. Peter will talk more about his experience here. Existing Investments Have you got the right investments for your new residency status, attitude to risk and new financial circumstances? Do you need to take an income from these investments, what sort of advice are we giving in the UK? Is there anything that you should do to manage your tax? Existing Pensions Apart from the World Bank pension you may have many pots from previous employments, Should these pensions be de-risked, can they be merged together? Do you need to take them at all (untaken pension personal pension pots can help with IHT planning) State Pension. What is this worth, when will it be paid? The State Pension age will increase to age 66 from October 2020. Do you qualify for the full state pension? Slide 12 UK Tax system The Coalition government, influenced by the Libdems, is aiming to increase the personal allowance to 10,000 per annum. In the UK the personal allowance is the amount that a person can earn before they start to pay tax. As of the 6 th April 2013, the personal allowance is 9,440 The age allowance is an enhancement to the personal allowance that over 65s get. 65-74 year olds get to earn 10,500 and over 75s 10,660 before they pay tax. However, the age allowance is being frozen and phased out and so that is all I will say about it. Everyone with income under 100,000 will get the full personal allowance of 9,440 in this tax year 13/14 before they pay tax. If you receive income in excess of 100k your personal allowance will be reduced by 1 for every 2 over 100k so that by the time your income reaches 118,880 you will be paying tax on all of your (taxable) income. Slide 13 example Let s have a look at a calculation assuming total income of 50,000. 9,440 taxed at 0% = 0 2,000 Additional WB Allowance = 0 32,010 taxed at 20% = 6,402 6,550 taxed at 40% = 2,620
Net income 40,978 Most people won t retire on income in excess of 100k or 150k but tax rates rise at these points. The personal allowance is eroded once your income exceeds 100k and income in excess of 150k is taxed at 45% Slide 14 example Whilst your retirement income may not be in excess of 100k, if you decide to carry on with any occupation, having drawn your pension, you could exceed 100k and so I have shown another example here: 440 taxed at 0% = 0 2,000 Additional WB Allowance = 0 32,010 taxed at 20% = 6, 024 83,550 taxed at 40% = 33,420 Personal allowance reduced by 9,000 Net income 78,178 Because you not only pay 40% tax on the income over 100k but also lose the PA, the effective tax rate on this income is 60%. Slide 15 Pension example This person should think about a 18k pension contribution because having made the contribution and after the tax relief he or she will end up with net income of 70,978. (only 7,200 less and a 15k pension fund) Slide 16 What is taxable income? Taxable income. What is classed as taxable income? Pensions, interest on bank accounts, income from employment or self employment, rent on additional properties or holiday homes, dividends and benefits in kind among others. By doing the calculation above (and for both of you if you are married) you can start to think of the most efficient ways to invest your capital for income. It will
also help you to decide what level of lump sums to take from your pensions. Will both partners be using their full personal allowances in retirement? The state pension never comes with tax deducted from it. That doesn t mean it isn t taxable, it is. However, the amount of state pension is offset against your tax code so that the tax is recovered from other income sources. Slide 17 Health Because the World Bank Scheme only covers the additional costs of treatment (i.e. it will not replace the NHS) Peter retains the WB plan whilst also using a private insurer. The World Banks scheme works very well as a travel insurance policy. As you know, the NHS in the UK will be available to you when you retire in the UK. This aims to provide free medical treatment when needed. It has limitations and is regularly lambasted and many people in the UK have their own provision. The reasons for this vary. Waiting lists some treatments take a long time to access from the point of diagnosis. This is particularly the case with non urgent cases. Private Medical insurance could allow you to access treatment much sooner. Choice of provider. Your local hospital may not be the best place for you to be, you may prefer a choice of private hospitals. Again PMI will give you extra options. Finally, some treatments may not be available on the NHS but could help your condition. Private Medical insurance can help with this. Steve Slide 18 Investments Now is the time to take stock of your current investment plans. Your investments could consist of a range of things bought at different times for different reasons. And whilst they may have been the right decision then, they may not be the right place now. We have talked about setting your stall out for retirement. Checking your pension provision and estimating your spending requirements in retirement is very important.
A proper investment portfolio will take account of your current situation with regard to tax, attitude to risk, income requirements and imminent and future capital expenditure. An independent adviser is able to assess any current investments. Can look at what you have at the moment and appraise its on-going suitability. We can help you to consider and assess your attitude to risk. Many people will be stopping work and will be looking for income. It is important to select investment wrappers that offer the most efficient tax regime for your individual circumstances. Slide 19 There is a plethora of choice out there and different assets have different objectives. Although shares, gilts and corporate bonds can be bought in individual companies through a stockbroker, most of what we recommend are through collective investments. It is important to ensure that your investments are appropriate to your objectives and attitude to risk. This not only applies now but will also apply going forward. A balanced portfolio will normally include the following assets Cash deposit based investments, National Savings Products, Fixed interest, UK and international, Investment grade Corporate bonds, which are loans to Companies with a good credit rating, high yielding bonds, these are loans to companies that do not have as good a credit rating and so need to pay higher interest, gilts, which are loans to the UK government or sovereign debt which are loans to other governments around the world. Commodities, investments in precious metals, oil and other natural resources. Equities, or shares, UK based, Europe, US, Emerging markets and Asia etc lower risk funds for UK residents will have equities, but mainly UK and US with maybe a small proportion in other international markets Property, direct commercial property, property shares, rents Hedge funds, Venture Capital Trusts, Enterprise investment schemes and other specialist investments.
These are a few examples of asset classes, most of these can be held directly or put into the following wrappers. Many of these asset classes can be held in all of these wrappers in the centre such as onshore and offshore investment bonds, Open ended investment Companies (modern unit trusts), ISA s and Pensions. The wrappers dictate how the investments are treated for tax purposes and it is important to get the right wrapper for your circumstances first. Then you look at the different asset classes. Slide 20 After studying your risk profile and objectives we can use outside Companies for setting the asset allocation models that are appropriate for risk rated portfolios ranging from very cautious to very speculative. We then research funds to populate the portfolios. These funds are reviewed on a quarterly basis and changes are recommended where appropriate during regular meetings. Slide 21 Pensions. Many people will have multiple pension pots, some such as your World Bank pensions are final salary schemes, the only choice you will have will be about the level of lump sum. The pension will include a spouse s pension and it will increase each year to offset some of the effects of inflation. Other pensions that you may have will come with many more options. I.e. do you combine them together and take an income from 1 annuity provider, do you have a level pension or an increasing annuity or do you defer taking the benefits? Slide 22 The rate for the current full UK basic state pension is 110.15 per week for a single person or 176.16 for a couple. The UK state pension is made up of the basic state pension and what used to be known as SERPS and is now known as the additional pension. If you haven t done so already, you need to get a state pension forecast. The Queens speech
last year suggested a flat rate state pension for everyone of about 147 per week from 2015/16. I.E no Serps etc The first thing to do here is to get a state pension forecast. http://www.direct.gov.uk/en/pensionsandretirementplanning/statepension/statepensionforecast/d G_10014008 This link will put you to the website where you can apply for a forecast. Your forecast will tell you whether or not you will qualify for the full state pension. You need 30 qualifying years in order to get the full basic state pension. If you are forecast to retire with less, your forecast will tell you. It will also tell you if you are short of qualifying years. If you are going to have a shortfall you can pay voluntary class 3 National insurance contributions, even if you are not in the country. Telephone 0845 9154811 or+44 191 2037010 to get advice and to arrange this if required. The state retirement age for Women will be 65 by 2018. Then the State retirement age for both men and women will increase to 66 by 2020. You could choose to defer taking your state pension. This might be useful if your income tax rate is likely to reduce in the future. If you decide to defer taking your state pension, it is increased by one fifth of 1% for each week of deferral this works out as 1% for each five weeks. Your State Pension is increased by around 10.4% for each full year of deferral so, if you defer your State Pension for five years, it is increased by just over half. If you decide to take a lump sum instead of extra pension, the lump sum is calculated based on the amount of State Pension you have foregone and a compounded interest rate of 2% above the Bank of England base rate. If you are unmarried and not in a civil partnership at the time of your death, the extra State Pension or lump sum cannot be passed on to anyone else. The lump sum will be taxed at the rate you are currently paying Income Tax on other income (so it will not put you into a higher tax band).
Slide 23 Preparing for the UK Once you have worked out what your outgoings will be and what income you can get from your pensions and investments, you will know whether or not you need to work or trim your spending. If you decide to work, will you be employed or self employed. Peter is going to cover some of the practicalities of selling up in the US and moving back to the UK. Slide 24 Peter to cover experiences and tips and pointers. Slide 25 Inheritance Tax. Slide 26 What can be done? Slide 27 Holistic review looks at existing plans, assess objectives and the cost of meeting them, Assess resources such as retirement income, Investment capacity. See any shortfall or surplus. If there is a shortfall can anything be done about any IHT liability? Slide 28. Action plan. Banks Wealth can help establish if there is there anything to do now? And what would you do on your return? Slide 29. We would also be available help with building a financial plan. Slide 30. A key part of financial planning is to regularly review. Slide 31. Last slide. Feedback forms. Next steps.
We are approaching the end of this presentation now and would like to suggest the next steps. Once appointed, we and other advisors would usually carry out a full financial review and would discuss with you your objectives, analyse your existing plans and look at budgeting and inheritance tax considerations. We would then prepare a financial report which would include details of current recommendations, needs not being addressed and actions for the future. Slide 27 For investments, we follow the approach discussed earlier, sub-contracting the Asset Allocation analysis and Fund Research. Slide 26 Our needs and objectives will continue to change into retirement. It is important to regularly review your plans and investments and We at Banks Wealth provide that ongoing service. Different asset classes will move at different rates and so over time your portfolio will naturally become unbalanced and so we look to rebalance it from time to time during our reviews. Your attitude to risk may change and so our service includes the ability to switch between risk models that are appropriate to you. Are there any questions for Peter or me?