As leading economists and senior politicians warn that 2012 will be one of the bleakest on record, financial experts say that one arm of society – expatriates – will be comparatively resilient to the tough economic conditions in the year ahead.
Around the world economies are expected to shrink, taxes are set to rise, the markets are to become even more volatile, and pension payouts rates will be the worst that will ever exist.
Doom and gloom. But not for everyone it seems.
“With the correct financial planning, British expats are able to maximise their wealth as never before in 2012,” explains Nigel Green, CEO of deVere Group, the world’s largest financial advisory firm, which manages funds more than 60,000 expatriate clients worldwide.
“There are a raft of ways that they can acquire a far greater disposable income than their friends and family in the UK and their counterparts in their country of residence.”
A European Union Retirement Benefits Scheme, or EURBS, is an increasingly popular method adopted by the deVere Group’s clients to get their most from their money.
“Modifications in EU legislation allow pension holders to move substantial funds to different member states when they retire. This means that they’re able to transfer their accrued pensions to a significantly more tax-efficient jurisdiction,” explains Nigel Green.
He adds: “A EURBS is particularly useful for those expats who move from country to country during their lives.”
In addition to the important tax benefits, a EURBS also allows for a tax-free, lump-sum withdrawal of up to 30 per cent, depending on where the client resides. Similarly, there is greater currency flexibility and more scope with the fund’s key investments.
The deVere Group uses Malta for their clients’ EURBS as it is regulated by the English-speaking FSA, has a long history of financial security, and has no less than 56 double-tax agreements.
Other attractive options open to British expats include a Qualifying Non-UK Pensions Scheme (QNUPS) whereby they save on local taxes in the country in which they are tax resident, as well as on UK inheritance tax (IHT); and a Qualifying Recognised Overseas Pension Scheme (QROPS) which allows inheritance tax and lifetime allowance charges to be avoided.
“Expatriates require a completely different approach to their financial planning if they’re to get the most from their money – and, fortunately, there are many unique options available to them. From tax solutions to pensions, from health and education schemes, if they get expert, independent advice, expats should be in store for very prosperous time ahead,” says Nigel Green.
The deVere Group’s optimism for their clients is supported by the latest HSBC Expat Survey. The bank’s report says: “Expats are seemingly downturn defiant with their finances remaining comparatively unaffected by the wider economic turmoil.”
Even in countries where the economic challenges have been exacerbated by political and social unrest or natural disasters, such as Egypt and Japan, it appears that in general terms, expat finances are robust, according to the survey.
With this in mind, the findings show that the majority of expatriates are deciding to stay where they are rather than returning to their countries of origin.
The data in HSBC’s annual ‘Expat Explorer Survey’ confirms that although expats have a low level of confidence in the strength of their aopted countries’ economies, their earnings, disposable income and ability to purchase luxury goods and services remain largely unchanged. Indeed, the investigation shows that they are experiencing a higher standard of living than they were in their own countries.
For instance, the report says: “More than half of expats in Bahrain have much higher disposable incomes than they did in their home country, as well as 58 per cent of expats in Egypt and 38 per cent of expats in Japan, compared with the global average of 35 per cent.”
Saudi Arabia, Egypt, Singapore, Russia and Switzerland made up the top five most lucrative expat destinations.
Expats living in Saudi have a strong disposable income because their salaries are not less reduced by tax and because many jobs offer accommodation or bonuses towards accommodation – and when you minus tax and accommodation you end up with a whole lot more cash to splash.
In addition, Saudi Arabia is not renowned for being a place where it is overtly easy for foreigners to go crazy with their money. It is not Dubai or Miami, for example. There is certainly less, or indeed little temptation, to go partying here, meaning that most expast save cash throughout the year and spend their money when they go on holiday.
deVere Group’s CEO, Nigel Green asserts that these findings of expat wealth being robust is triggered by two key factors – the types of jobs expats are employed in, and the raft of financial advantages open to expats generally.
“Expats can be divided into two groups: those who aren’t necessarily attracted to their new countries of residence but who are reeled in with high salaries and incentives; and those who have spent time in a country and who are lured by its lifestyle,” he explains.
“The first category will naturally have a significant bearing on the overall figures for expat wealth as they’re a country’s high earners. Historically, many top jobs in emerging markets, places such as Russia, China, Egypt and Dubai for example, have gone to expatriates as they have often had more professional experience.”
But the second category – those lured by a country’s lifestyle – as well as those in the high-earning first category, are often able to take advantage of substantial tax savings.
“When you talk about expats some people have pre-conceptions about what kind of person that is: retired older people with money to invest. But our typical client is between 35 and 45 years old and working. We do deal with some retired ex-pats, but they are in the minority.
“The fact remains that those living and working abroad, wherever they are in the world, – from Abu Dhabi to Australia, from Spain to South Africa – have distinct benefits” he confirms.