'I need to make plans for the journey home'
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Your support makes all the difference.Although Ian rents a flat in Hong Kong, he also owns two properties – one in central Hong Kong and another in Shipley, near Bradford. Both have 12 years remaining on the mortgage and are rented out.
Ian has a pension fund with Eagle Star worth approximately £50,000, and contributions to his local pension saving scheme in Hong Kong have also accumulated a sum equivalent to £50,000. In Hong Kong there is no law which requires Ian to purchase an annuity with his pension fund, so when he leaves his current employment he can take the cash.
Ian has other savings of £130,000 but realises this is not sufficient to finance a comfortable retirement. He does, however, pay voluntary National Insurance contributions .
Case notes
Ian Robson, 52, Hong Kong
Personal: Ian is a UK citizen living in Hong Kong. He plans to retire to Britain once he has finished work.
Income: Ian is employed by The American Club, a private members club in Hong Kong, earning a salary that is worth around £40,000 a year.
Savings: £130,000 in addition to pension.
Debt: £1,200 outstanding on credit card.
Pension: Ian has two separate pools of pension savings. He has a personal pension with UK insurer Eagle Star, where his savings are worth £50,000. He also has a local pension saving scheme through his Hong Kong employer, also worth £50,000.
Property: Ian currently rents a flat in Hong Kong, in which he lives. He also owns two flats – one in central Hong Kong and one in Yorkshire. Both are rented out.
We asked Tom McPhail, of Hargreaves Lansdown, Paul Willans of Mazars Financial Services Ltd and Richard Moorfield of James Trickett & Son for advice on Ian's financial situation.
Pension
McPhail says that a pension fund of £100,000, invested until age 65 will produce an income of around £9,700 in today's terms. If the total savings of £230,000 (pensions plus other savings) are taken into account, Ian could expect that to grow to £487,500, which might produce an income of £22,312. This assumes 6 per cent investment growth, 4 per cent inflation and 4 per cent annual pay rises.
Willans suggests that Ian repatriates the funds to the UK on retirement and invests to provide an income or buys a purchased life annuity. With this type of annuity, part of the income will be tax-exempt.
Depending on future growth in the fund, UK interest rates and his health at the time, Ian could obtain a guaranteed income for life of, perhaps, £5,000 a year. Assuming the Eagle Star policy provides a similar return and that the UK State pension keeps pace with inflation, his overall pension income could be in the region of £15,000.
Should Ian choose to live in his Bradford property and sell his Hong Kong flat on his eventual return to the UK, he could generate a further £8,000 a year.
Moorfield advises Ian to review his Eagle Star pension. A transfer to a cheaper stakeholder plan, for example, might be a good idea.
Investment
McPhail says Ian has a fairly large exposure to property already so wouldn't suggest any further property investment. He recommends a mix of high-yield equities, plus some exposure to a bond fund. The equities should provide a rising income over the long term, and the bond exposure and his existing property investments should deliver a reasonably well-diversified portfolio.
The changes to the pension rules from next April mean that, if Ian does take up employment in the UK again for any period in the future, he may be able to invest substantial sums in a UK pension - up to 100 per cent of his income.
Investing in the currency of his retirement makes sense. McPhail thinks Ian should investigate sterling denominated offshore funds, to achieve this, whilst enjoying tax-free roll-up until he returns to the UK.
Savings
In order to maximise Ian's returns, Willans recommends Ian plan ahead in order to mitigate tax on his savings. At present, he is unlikely to be considered as resident in the UK. Therefore, he is not liable to UK capital gains tax on gains realised prior to his return to the UK.
For this reason, Willans stresses that Ian should focus on savings and investments that provide capital appreciation, rather than income, and that he realises the gains prior to his return. However, he will need to take local tax advice in order to avoid unnecessary tax in Hong Kong.
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk
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