A Personal Life Plan

People retiring permanently to Spain should draw up a personal life plan statement. It can go something like this:

‘While committed to a long and happy retirement in Spain, it may be, that for whatever reason it turns out not to be a dream and regrettably a permanent return home may be necessary. As a consequence for the first few years at least, one foot will be kept in Spain and one back home.’ This very wise life plan has two consequences:

• A property bolthole will be kept back home, either empty or rented out.
• In arranging financial plans, some of them should be based back home.

This ‘personal life plan statement’ needs to be revisited after a year or so, with hopefully the dream realised and with both feet now planted firmly in Spain. An adjustment to the financial mix and the possible sale of the property back home can then take place.

Planning Your Pensions

The principle of pensions is straightforward but constant changes in the law have allowed greater options. In an occupational pension, money has been invested by one or more parties over a number of years. The pension is paid out, usually with an inflation element, according to the rules of the scheme as set by the trustees, based on final salary and the number of years in the scheme.

Annuities, however, are a bit more complicated. An annuity is a regular income bought with a lump sum. In the last ten years annuity rates have fallen by 40 per cent. They are based on the average life expectancy and the long term yields on government bonds. Life expectancy has increased, yields have fallen – which is double bad news for annuities.

There are three types of annuity. Level annuities are paid out at the same amount for each year but the purchasing power is eroded by inflation. Escalating annuities ratchet up by a set percentage each year but the bigger the escalation the lower the income to start with. Lastly, index linked annuities can follow routes such as the Retail Price Index.

Some pensions are best left alone, some better converted to annuities. A flexible pension, taken out in the later years of life according to one's need, is excellent. A choice of pension is a major decision. Once done, that is it, for the rest of your life.

Planning Your Investments

Investments are more flexible although each one should be entered into with a long-term strategy. Investments are about risk, with risk being relative to each person. Reward follows risk, it is the law of economics.

Risk can be categorised, ranging from inflation risk to gambling risk, but most investments focus on geographical, sectional and equity risk. Geographical risk involves a part of the world such as the UK, Europe or the USA. Sectional risk involves investing in a sector such as technology, retail or food. Equity risk relates to the investment type such as bonds, shares or unit trusts.

At the bottom of the risk ladder are building societies, corporate bonds and government stocks. Going up the risk ladder are tracker funds that mirror the FTSE 100, and shares in companies. Near the top are overseas investments, or themed investments such as technology stocks. At the top are volatile futures dealings.

Investing In Spain

A variety of investments are available for the ex-pat in Spain. They are advertised in the weekly newspapers. In addition to conventional investments they range from dabbling in the futures market, buying up endowment policies and purchasing offshore unit trusts or bonds.

With-Profits Bonds

One of the more sound investments is an offshore with-profits investment bond being a tax efficient single life insurance policy, offered by a number of reputable investment companies with offices in Luxembourg, the Isle of Man or Guernsey.

There is a choice of investment and the opportunity of regular withdrawals. The key is the investment stays in the offshore geographical location, the gains not being affected by the place of residence. Responsibility for the declaration of withdrawals rests with the investor.