This is the first of a series of occasional articles I have agreed to write for Expat Focus and I hope I can bring you some interesting and useful information as time progresses. Hopefully we can discuss issues that are important and interesting to you so please write in with suggested topics. I cannot guarantee to answer them all but I’ll pick those I can best answer or those which are likely to be of most interest to a wider audience. I am not a tax expert nor any longer an expert on the full gamut of UK pensions as I have been away too long and things have changed, but I do know more than a little about an awful lot of subjects and if I can help or offer an opinion I am pleased to do so.

I had better introduce myself. My name is Geoff Birch and I have been involved in offering retail financial services advice to the public now for 30 years. Just over twelve of those in the UK and nearly 18 to expatriates around the world. For the last 10 years I have run my own business which is an online funds discount brokerage and my forte is investment. “So what?” you might say and indeed it would be a good question as no doubt you are pestered by a stream of “financial advisers” telephoning you at work with a promise to sort out all your savings and pension needs. The difference is that my services and that of those you might normally encounter in your expat lives are fundamentally different. Firstly I don’t contact people looking for business, fortunately I don’t have to, but my approach to this business is not typical. Please allow me to explain.

Some of you may have read my posts over the last ten years on The Motley Fool expat boards where I have on many occasions tried to prevent people making some very costly and poorly conceived decisions to invest in long term regular savings products from insurers that are dressed up as pension schemes. Let me tell you clearly here and now that these schemes are a very poor value way to save your money. They are very restrictive and very expensive and the only ones guaranteed to make a profit on them are the people promoting them. Let’s be clear here that these schemes obligate you to pay a sum of money in for a fixed period of years. If you stop paying in or ask for YOUR money back there are usually very substantial penalties involved. In some cases almost a total loss of your money in “penalties”. How can that be fair?

Not all of the plans have these penalties but in my experience Joe Expat isn’t usually shown those options. He is instead given the fixed term plan with the big penalties and high charges and you are then between a rock and a hard place. If you continue to save into the plan it is a very expensive way to save and if you stop there are penalties. You are also told most often that after a qualifying period of 18-24 months you may reduce the amount you contribute but what they don’t tell you is that it keeps charging you like you were still making the sum originally agreed. If you simply stop they write telling you that you are “in arrears”, but hey isn’t this supposed to be you saving your money? Where did we cross the line that allowed these people to treat your money as their money and entitle them to large percentages of it? Doesn’t this strike you as somewhat ridiculous? It does me and so I don’t use these.

I’d also tell you that I have just today received in my inbox some more “special offers” from one issuer of this type of plan. One offers “up to 162.5% allocation on the full 18 months initial period”. Sounds good doesn’t it that say you saved £1000 pm that you would be credited £1625 per month into your long term savings plan? However let’s just look under the bonnet of that a moment. The initial period is 18 months and the charges on the initial period are 1.5% per quarter on those initial contributions throughout the term. What this translates to is that 18 months is 6 quarters and we have 1.5% x 6 = 9%. So they will take back 9% per annum throughout the term of your plan on everything you contributed over the 18 month initial period. So if you paid in £1000 pm for 18 months without the “Special offer” you would pay 9% pa of £18k = £1620 pa. However with the “special offer” your valuation may look good at the end of 18 months (but you can't have that out due to the surrender penalties), but you would have paid in £18000, been credited with an extra 62.5% being £11250 so we now have a total of £18000 + £11250 = £29250 and you’ll be paying 9% of that throughout the term, this being = £2632.50. Let’s call that £1000 pa difference between having the offer and not but based on your same £1000 pm contribution. Over a 25 year term even if that sum remained flat, and it has to make 9% pa just to stand still, that’s £1000 x 25 = £25k. Correct me if I am wrong but doesn’t that make it more expensive to have the special offer than not? By the way you also have monthly policy fees, mirror fund charges and an annual management charge to contend with from the product and then you have the underlying fund’s annual management charges on top of that. In this low growth world we have now, if you can make a profit from that I’d be very surprised if it’s very much of one. Marketing or smoke and mirrors? It may be legal but do you think it is honest? What is the point of all these regulators when one can legally sell rubbish to unsuspecting people trying to provide for their own long term financial security? Could it be anything to do with the taxes the insurers pay, the political contributions they make and the number of jobs they provide? No one I know who promotes these plans actually invests in one themselves and I have several clients whose job it is or until quite recently was to promote these to IFA’s.

My view is that a saver doesn’t need to have an obligation to save. We are all adults and if you can’t take responsibility for your own future financial security you shouldn’t be allowed out on your own. So assuming you are prepared to take that self responsibility on then doesn’t it make much more sense to invest in funds that only charge you for so long as you are satisfied with them and if you wish to come out of them or never add another penny but leave the money there then that’s just fine and no problem with no penalties? A kind of pay as you go system where you are always in control of your own money, and if you change your mind you are free to do so. Doesn’t that make much more sense? I’ll let you into a little secret too, this is also a much cheaper way to save because no one is receiving huge upfront commission payments which have to be clawed back from your savings over the coming years, or in one go if you opt out. Also you have the option to invest in the whole investment universe and not just the menu of funds offered by such schemes. I was offered payment this week by an expat to take on and try to improve a couple of long held plans he had but I didn’t like any of the funds I would have had to use so I politely declined to take on the job. I would have been judged on those results and I didn’t feel I had the tools within the constraints of the products which would enable me to get the result he would have liked. So if you can see commonsense in what I say don’t sign on the dotted line with any of these offshore pensions vehicles as they will not provide a pension, they are only a savings vehicle and there are better and cheaper ways to approach the problem. You can have much more freedom of choice and because it costs less you get a better end result. More savings!

Changing the subject now I would add that settling into a new home is always an adventure but it is also a time of discovery and occasional frustration. Having moved several times between countries myself over the last couple of decades I take it much in my stride now but I have certainly learned a lot from my experiences.

One problem that keeps coming up in these days of ever tighter anti money laundering laws is that when you move and advise your bank or other financial institution that you have moved is that they will ask you for new proofs of address, usually two – these normally being a bank statement and utility bill for each named investor. However what I find now is that many men take the responsibility for the household bills etc and the bills show only one name. I have done that myself and now because the rules keep changing it has come back and bitten me as well as many clients in the same position so here is your opportunity to learn from our experiences. Because there is little or nothing in your wife’s name when you then need to prove where your better half lives this causes no end of hassles, so my advice to anyone moving now is to put all utility bills, house contents insurance and bank accounts in joint names. Also never close a bank account these days. It is so much hassle to open a new one and you never quite know when you may need one again so I’d say even if you keep a minimum balance to keep it open it’s probably worth keeping. Last year I was personally unfortunately a victim of the collapse of Kaupthing Singer and Friedlander Bank in the Isle of Man. Singers was actually the best bank I have ever dealt with and I miss then dearly so it was sad that Kaupthing came along at all and spoiled everything. However at the time of the collapse it was very difficult indeed for me to move or redirect money because it was so difficult to open a new account in the company name and I am presently substantially out of pocket because of it. Fortunately my investments covered my losses but never again will I put myself in the position of trusting a bank too much or a compensation scheme that is full of holes, and I would tell everyone who’ll listen to bank in more than one bank and one jurisdiction.