Blevins Franks Financial Tips - How Does Inflation Impact Your Retirement Savings?

With inflation surging in both the EU and the UK, now is the time to review your savings and investments to establish if they are suitably structured to provide protection from this threat. Even low levels of inflation can erode your spending power over time and retirees need to plan for this.  

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair”. 

This quote by American author and humorist Sam Ewing may make you smile, but it is a good example of the impact of inflation over the passage of time and underlines a serious threat to our long-term financial security.

Ronald Reagan used a more hard-hitting description: 
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man”.  

Many people do not realise how damaging inflation is to their wealth over the longer term; it is easy to become complacent after years of low levels. But it is surging in many countries, causing concern among savers and retirees. In fact, you should always take inflation seriously as even low levels impact your wealth and retirement income over time – you may not notice the effects each year until it is too late.  

The impact of inflation 

You cannot just consider inflation rates on their own, you need to compare them to your earnings. If your savings generate a lower return than inflation, the real value of your money is falling and your income will buy less than it used to. 

Put very simply, and ignoring the impact of compounding, if your bank account pays 1% interest but inflation is 2%, after 10 years you will have 10% more money, but the goods and services you purchase will cost 20% more. In real terms you’ll effectively be 10% poorer.  The more time passes, the more damaging it is. 

Official Consumer Price Index (CPI) figures are based on a basket of goods containing a representative selection of items for people across all ages and incomes. It rarely reflects our own personal inflation rate.  As an illustration, a personal annual rate of 4% would reduce the spending power of 100,000 (Euros or Pounds) to around 67,000 after 10 years.  After 20 years it will have lost around 55% of its value and after 30 years your 100,000 would have the purchasing power of around 30,000 today.  

Inflation in Eurozone and France 

Across the Eurozone, the annual inflation rate reached a record 5.0% in December 2021, up from 4.9% in November. A year earlier, the rate was -0.3%. For the EU as a whole it was 5.3%.  The highest contribution to the annual euro area inflation rate came from energy, followed by services, non-energy industrial goods and food, alcohol & tobacco.

France tends to have lower inflation than the EU average and was 3.4% in December 2021.  A year previously it was 0%, but it first hit over 2% in August and has been slowly climbing since, with its Harmonised Index of Consumer Prices reaching 3.4% in November 2021 and maintaining the same rate in December. 

The biggest culprits were energy and petroleum products, but food prices have also seen a sharp increase year on year. 

UK inflation

In the UK CPI reached 5.4% in December 2021, the highest rate for almost 30 years. A year previously it was 0.3%.

In comparison, the Bank of England’s main interest rate was just 0.25% in December, an increase from November’s 0.1%.  It has been below 1% since March 2009.

Will inflation remain high?

Many of the factors behind the current surge are related to the pandemic and expected to be temporary. 

As economies opened unevenly after lockdowns, companies have been struggling to keep up with rapidly rising demand as they rebuild their supply chains.  Shortages of many goods like computer chips and building materials have pushed prices up. 

In addition, electricity prices rose sharply, hitting us both directly and indirectly as businesses pass on costs to customers. 

The Bank of England expects inflation could reach about 6% by spring 2022, but then start to come down. It warns, however, that some prices may remain higher than in the past. 

The European Central Bank also expects inflation to reduce over 2022 as supply gradually catches up with demand, but warns that as the pandemic is unprecedented in modern times this recovery may be different.

One particular uncertainty is wages. Prices and wages influence each other - if wages rise to compensate for higher costs of living, companies may recoup this expense by putting their prices up, so this an area to watch.

Protecting your retirement savings

Hopefully inflation will soon fall back to comfortable levels but, as mentioned earlier, even low levels will affect you by eroding your spending power year after year.  You always need to plan to protect your savings from inflation.

To generate returns that outstrip inflation, you need to invest in assets that historically generate returns in excess of inflation over time. Reduce risk to your capital by working with a wealth management adviser to follow a disciplined investment process:

·      Establish your goals and time horizon.

·      Determine your attitude to risk – your adviser should take you through a suitability process to calculate this objectively.

·      Construct a suitable, well-diversified portfolio to achieve your investment plan and objectives. 

·      Use quality investment managers.

·      Review your portfolio annually to keep it on track.

·      Be patient and stick with your plan – it is time in the market, not timing the market, that is likely to help you achieve your longer-term goals.

If you already have investments but without a carefully designed strategy tailored to your particular situation and appetite for risk, or have not reviewed them recently, look at your financial affairs to confirm if they are suitably structured to provide protection from potential future threats like inflation and taxation.

You need a tax informed investment strategy with the potential to provide capital growth higher than inflation and where your money is legitimately protected from unnecessary taxation. This can be achieved with a diversified investment portfolio, based on your objectives, circumstances and risk profile, held within a tax-efficient arrangement which is compliant in France.

CPI data is based on figures available on 20 January 2022. All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.

You can find other financial advisory articles by visiting our website here

Blevins Franks Financial Tips - UK Based Financial Advice and Services Post Brexit - Four Important Considerations

As we move towards the end of 2021,Brexit is no longer a novelty, but we are still learning exactly how we are or may be affected.  While in many ways day-to-day life hasn’t changed for British expatriates, there are some inconveniences – some minor, some not so minor. 

One Brexit consequence that is causing concern and difficulties for many UK nationals in France, is financial advice and services – we are receiving a lot of questions about it. 

The Brexit trade deal did not cover financial services, which meant the previous ‘passporting’ regime came to an end on 31 December 2020.   While post-Brexit negotiations could change things in the future, you do need to establish if your financial planning – and adviser – will stand up to the challenges that Brexit brings today. Here are four key considerations.

1.     The end of passporting

If you have a good relationship with your UK-based financial adviser, you may understandably wish to continue using them, despite now living in a different country. However, you need to make sure they can legally continue to advise you now that the UK is no longer an EU member state. 

Until the end of 2020, UK-based financial businesses could ‘passport’ out of the UK and into Europe – but since 1 January 2021, this no longer applies.  

‘Passporting’ enables cross-border transactions between EU member states through shared financial regulation. It was previously possible because the UK Financial Conduct Authority (FCA) was bound by the same rules and standards as other regulators in the EU. Now the UK has left the EU, the regulation of financial activity and consumer protection no longer lines up on both sides. So, unless a mutual deal is agreed on financial services in future, the EU no longer permits ongoing passporting arrangements for UK financial businesses and advisers.

Some UK financial firms have put arrangements in place to be able to continue working in an EU country post-Brexit, but others have not. Many expatriates with EU residential addresses have received letters from UK banks, financial advisers and investment institutions advising that they can no longer support them.   

2.     The limits of UK advice

If you still retain UK investments, a UK-based adviser may be able to continue supporting you there. But if you hold savings and investments with an EU-based institution, they may no longer accept instructions, such as top-ups, from a UK adviser. The financial regulator in France, for example, had confirmed it would be illegal for French banks and insurance firms to do business with a provider who is not authorised in the country post-Brexit. Similarly, while the Central Bank of Ireland enabled a three-year grace period for servicing existing insurance contracts, it will not allow unregulated entities to renew or create new policies from 2021.

We can expect similar positions to be taken by other EU regulators seeking to protect consumers in their country, so this could limit the planning opportunities for expatriates using UK-based advisers.

Also, check if there are any practical challenges to keeping a UK-based adviser. Do you have to travel to the UK for meetings and paperwork requirements? Consider how this would work in situations where you need funds quickly or are unable to travel through illness or travel restrictions.

3.     The advantages of local knowledge

As well as the legal and practical implications, consider whether an adviser based in a different country is best placed to help you take advantage of opportunities available to you in France. For example:

·      Do they fully understand the intricacies of the French tax regime and how it interacts with UK taxation?

·      Do they have in-depth knowledge of the French residence, domicile, tax, succession law and reporting rules?

·      Do they know about – and have access to – tax-efficient solutions that offer significant benefits to France residents?

·      Who will pay the bill or face the consequences if they get things wrong?

While UK-based advisers may be experts on the ins and outs of the UK system for residents there, it is unlikely that they have the same in-depth knowledge for another country. 

4.     The suitability of UK planning

Remember: financial planning that is tailored for a UK resident is unlikely to remain suitable once you become resident elsewhere. If you have not yet moved to France, review your arrangements before you do to minimise taxation when changing residency and make the most of tax-efficient opportunities in France.

If you are holding on to UK savings and investments, beware that they can lose their tax benefits once you are living abroad. And once they cease to be EU/EEA assets and you are no longer a UK resident, they could potentially attract a higher tax bill, in either or even both countries. 

Meanwhile, France residents have access to locally-compliant alternatives that can offer other advantages besides tax-efficiency – such as multi-currency and estate planning flexibility – so explore your options. Depending on your circumstances, many British expatriates in France have found that reviewing and adjusting how and where they hold their capital has significantly improved their tax position. 

It has never been more important to ensure your financial affairs are both compliant and suitable for your life in France. Secure financial peace of mind by talking to an experienced, locally-based adviser.

Blevins Franks Group is represented in France by the following companies:  Blevins Franks Wealth Management Limited (BFWML) and Blevins Franks France SASU (BFF). BFWML is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists.  Blevins Franks France SASU (BFF), is registered with ORIAS, registered number 07 027 475, and authorised as ‘Conseil en Investissements Financiers’ and ‘Courtiers d’Assurance’ Category B (register can be consulted on www.orias.fr). Member of ANACOFI-CIF. BFF’s registered office: 1 rue Pablo Neruda, 33140 Villenave d’Ornon – RCS BX 498 800 465 APE 6622Z.  Garantie Financière et Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code Monétaire et Financier and L512-6 and 512-7 du Code des Assurances (assureur MMA). Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of retirement schemes. This promotion has been approved and issued by BFWML. 

You can find other financial advisory articles by visiting our website here

EU Post Brexit - Why It’s Time To 'Think Local' For Your Financial Planning In France

Now that Brexit is here, EU-resident Britons with UK bank accounts, investments or a UK-based financial adviser may see accounts closed or face restrictions. In these times of widespread restrictions and lockdowns, our worlds have become a lot smaller. Whether this will have a long-term effect on your travel, lifestyle and shopping habits will be a personal matter. But with Brexit now in full flow, UK nationals living in France have good reason to permanently ‘think local’ when it comes to financial arrangements. 

Just as UK citizens lost automatic EU freedom of movement when Brexit took effect on 1 January, many UK financial businesses lost the right to provide banking and investment services within the EU. If you are resident in France but still use a UK bank account, other financial products or a UK-based financial adviser, make sure you check where you – and your money – stand.

UK financial services and Brexit 
Before Brexit, UK firms providing financial services to Britons living in the EU could legally do so through ‘passporting’ arrangements. This meant UK providers – enforced by the Financial Conduct Authority (FCA) – were committed to meet the same minimum standards and consumer protections for EU residents as other EU states. 

But now that the UK (and the FCA) are free to make their own rules, the EU has no assurance that UK firms will meet their requirements. Consequently, on 1 January, the EU withdrew passporting rights for UK firms ­– including banks, insurance companies, investment providers and financial advisers. Now, some could even be breaking the law by working with EU residents.  

Does this affect all UK financial firms?
This depends on various factors, including how a company is structured and where it is based. Those with headquarters in an EU country, for example, can retain their passporting licence and continue operating as before. 

However, wholly UK-based firms who want to support EU-resident clients will likely need to restructure and form agreements with the financial regulators for each EU/EEA country they operate in. This is a highly complex, expensive and time-consuming process, so not a cost-effective option for all.

Negotiations on financial services are ongoing, so it is possible that the UK and EU may still reach an arrangement in this area. Some companies may be holding out for this before going through the potentially unnecessary expense of restructuring. Others have already withdrawn from EU markets. 

Some major UK banks have informed EU-based clients that they cannot provide services for them post-Brexit and closed their accounts. Other providers have kept accounts/policies open but suspended activity, or are allowing them to run until the end of their term.  

How might this affect you? 
If you hold a British bank account, insurance policy, investment or other financial product and your provider hasn’t contacted you about limited services, ask them what arrangements they have in place for France. 

If your account has not been closed, has it been frozen? In some cases, while you may be able to retain existing accounts and make withdrawals as an EU resident, you may be restricted from adding or moving funds or renewing policies. You may also be unable to apply for new services, such as term deposits, bonds, foreign currency management, loans, credit cards and mortgages. 

If you still use a UK-based financial adviser, check they have the authority to continue supporting you as a French resident. Besides the legal implications – and whether you are protected if things go wrong – some financial institutions have stopped accepting instructions from UK-based (unregulated) providers. So if you hold EU-based investments, your planning options may be significantly limited with a UK adviser. 

Post-Brexit financial planning for France
Even if the financial services issue does not affect you, there are other key benefits to thinking more local for your finances. 

Still holding on to UK savings and investments? Now that UK assets are no longer EU/EEA assets, they could potentially attract a higher tax bill within the EU. ISAs are also taxable in France for non-UK residents. Own UK property? Remember: EU residents are still in the firing line for UK stamp duty and capital gains tax.

Meanwhile, French residents have access to opportunities that can offer better tax-efficiency and other potential benefits, so make sure you review your options.

What about UK pensions? This is not so straightforward. You may be better off leaving them in the UK and drawing income as needed in France. However, while Brexit does not affect the ability to receive UK pension income into an EU account, it will always be paid in sterling, so the value could be adversely affected by exchange rates and conversion costs. Explore whether it may be more beneficial for you to transfer funds out of the UK into a tax-efficient structure for France. Doing so could also unlock currency flexibility and estate planning benefits, but be sure to take specialist, regulated advice to do what’s right for you.

With Brexit bringing such a seismic shift in the landscape, it has never been more important to ensure your financial arrangements are compliant and suitable for your life in France. A specialist, locally-based adviser is best placed to help you take advantage of suitable opportunities here and secure financial peace of mind for you and your family.

Blevins Franks is fully authorised to provide advice in France.  Our financial advisers live and work locally and have in-depth knowledge of the local tax and succession regimes and common issues faced by UK expatriates. Contact us to discuss how we can help you with your investments, pensions and cross-border tax and estate planning.

By Rob Kay, Senior Partner, Blevins Franks

Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this article, which is general in nature and not specific to your circumstances.

Blevins Franks Group is represented in France by the following companies:  Blevins Franks Wealth Management Limited (BFWML) and Blevins Franks France SASU (BFF). BFWML is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists.  Blevins Franks France SASU (BFF), is registered with ORIAS, registered number 07 027 475, and authorised as ‘Conseil en Investissements Financiers’ and ‘Courtiers d’Assurance’ Category B (register can be consulted on www.orias.fr). Member of ANACOFI-CIF. BFF’s registered office: 1 rue Pablo Neruda, 33140 Villenave d’Ornon – RCS BX 498 800 465 APE 6622Z.  Garantie Financière et Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code Monétaire et Financier and L512-6 and 512-7 du Code des Assurances (assureur MMA). Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of retirement schemes. This promotion has been approved and issued by BFWML.

You can find other financial advisory articles by visiting our website here