Neil Clarke, paraplanner with Montfort International, says the complexities of helping clients move their finances overseas makes his job the most satisfying of his career
Neil Clarke, paraplanner with Montfort International, may only have been a paraplanner for three of his 25 years in the financial services and insurance markets but he says he was born to do the job he has now.
Montfort International has been trading since the early 1990s and specialises in helping people who are moving overseas with their finances, in particular with the complexities of moving pensions and investments to overseas jurisdictions.
“Most of the work that Montfort does is pension work, especially final salary pensions transfers,” Neil says. “But there is a lot more to it than just the finances. There is a lot of taxation work as well, because we can be dealing with two or more jurisdictions.
“We will also help people get their Visas and help them understand the whole process of emigrating; in particular, explaining the tax situation and how their UK pension and investment products will be treated abroad.”
Currency is a big issue, notably post Brexit, Neil adds, and the firm will put people in touch with currency brokers who can help them get the best outcome when transferring their cash. This is an example of one of the complexities with which he deals, he explains. “You can have currency gains just by keeping sterling in the UK, which then means you can be liable to tax on that gain in Australia as you are deemed to be a foreign currency speculator!
“So what we do is very much looking at the whole picture and trying to help the client’s move overseas go as smoothly as possible.”
Long road to paraplanning
Much of Neil’s career has been spent in the insurance industry. Having obtained a BA Hons in Economics and Econometrics (combining maths, economic model building and history of economics), on leaving university he joined insurer Eagle Star (now part of Zurich) training as an underwriter on the general insurance side of the business. He progressed to chartered level, with the aim of being a liability underwriter.
But in the early 1990s he became interested in investments, “dabbling in the stock market”, which saw him more and more attracted to financial services.
Also, on leaving university he was influenced by a book, Making Money Made Simple by Noel Whittaker, subtitled ‘The way to wealth in Great Britain in the 1990s’. “It set goals like paying off your mortgage by the time you reach age 30 and to invest in the stock markets, with the aim of retiring at 40, which resonated with me,” Neil says.
It was that personal interest in finances that also piqued his interest in becoming a financial adviser. He took his FPC 1 and 2 exams in his spare time and when he was made redundant as part of the company’s take over, he used that as the catalyst to move into financial services. While he wanted to be an IFA, he had no financial advice experience, so his first role was as a broker consultant with Friends Provident. During his time there he focused on building his qualifications, taking FPC3, G10, G20 and G70, and achieving the Advanced Financial Planning Certificate.
He began also to spend more time with Friends Provident’s technical trainers. “I was really impressed by them. They had huge amounts of knowledge and would present to brokers and come up with clever tax solutions.
“I almost went down that route but then an adviser firm I was dealing with, Principals in Practice, based in Horsham, said they would take me on as a trainee adviser.”
But he joined in 2002, just after people had been burned by their investments and so weren’t looking to go back into the markets in any great numbers.
“While I really enjoyed meeting the clients, researching the report and making the recommendations to try to solve their problems, trying to find new clients was frustrating,” Neil says.
By chance he met an old colleague from his insurance days who was setting up an insurance pricing team for Royal and Sun Alliance (RSA). Although still unsure about leaving his IFA role, he went to the interview. “It was an area I knew well and they were offering a lot more money to work 9m to 5pm, with flexi-time and more holidays,” he says. The upshot was that Neil took the job and stayed there for 10 years.
Nevertheless, during this time Neil was keeping up with his gap fill and attending PFS conferences, to keep abreast of the financial advice market.
When he was offered redundancy, he moved back into financial services. This time however, he eschewed the adviser role and became a paraplanner with Montfort International, where he has worked since December 2014.
Neil also followed the advice given in Noel Whittaker’s book, paid off his mortgage and, although he didn’t retire at age 40, soon after he was able to move to a three-day working week.
This has allowed him to attend conferences and undertake examiner work for both the CII and the Actuarial Institutes. “To some extent it’s given me the freedom to do what I want to do” he says.
And that, he has discovered, is paraplanning. “Paraplanner is very much my role. It can be very challenging but I like the problem solving and because we work as a team here, we’re always bouncing ideas off one another and debating what is the best solution for the client.
“It’s satisfying to figure it all out; for things come together in terms of the pensions, tax, currency and to put a solution in place that achieves what clients want to do, allows them the income they want, in the currency they want and to retire when they want. And, above all, to do that so the client can understand it.”
What’s a typical day for Neil?
I’ll come in early in the morning because we work across time zones, so we might have client Skype calls and a lot of our emails will come in overnight, as people respond to our information requests, for example. There’s an 11-hour time difference between the UK and Australia so it’s about trying to find good times to talk to people.
After reading my emails, the bulk of my day will be researching and writing reports. Being here three days a week means I do have to focus on the reports.
Due to the nature of the work, our advisers have to be technically qualified because they have to explain everything to the client. I am a Chartered Financial Planner and hold the AF3 qualification but I’m not FCA authorised to give advice, so while I will sit in on some client meetings it tends to be the adviser who will see the clients and gather all the information.
They will then brief me on the client’s circumstances and what they see as the issues. Then I will read through all the email correspondence, which can be up to 200 items or more, and pull everything together.
Most of our work is defined benefit pension schemes, so I will set out all the information on the scheme, when the client joined, when they left, the deferred pension, I’ll put it through the TVAs software, crunch the numbers and come up with my initial recommendation. Then the adviser and I will talk it through, after which I’ll finalise the report.
We are lucky at Montfort to have Eugen Neagu, our head of financial planning, who has an encyclopedic knowledge of UK pensions legislation and he will help with the solutions where it is needed. The whole process is very much a team approach.
Neil says a complex report, such as one including three jurisdictions, lifetime allowance issues and limitations on the amounts that can be transferred overseas, could take him up to three days to complete but on average he is completing two a week.
He also sits on the investment committee, which meets on a quarterly basis.
Neil and the other four paraplanners at the company also have to keep up-to-date with the rules and legislation in the various jurisdictions.
“Most of our work is in Australia, New Zealand and the US, and alongside 20 plus years of doing this kind of work, we have a network of tax and financial advisers in these countries so if something happens we will hear about it quite quickly. It means that we will sit and watch the UK, Australian and New Zealand budget announcements, for example. In addition, we have a good library of tax books for most countries we work in and an Australian tax accountant works in the office who helps also to keep us up to date.”
Overseas pension transfer case
We asked Neil to outline what an overseas pensions transfer case might involve to give an idea of the issues without going into too much technical detail.
“A common example is moving a UK DB pension to Australia. The first thing that you have to explain to the client is that the rules around taxation are very different. In the UK, a pension is a tax wrapper so you obtain tax relief when you pay in and the growth of the fund is not taxed but you are taxed on withdrawals. In Australia, contributions are mandatory and taxed and the growth of the fund is also taxed, usually at a concessional rate of 15%, although pension benefits are paid out tax free. It is the opposite situation.
“What isn’t going to happen is for a UK expat in Australia to leave their pension to grow tax free in the UK and then at retirement be transferred and paid out tax free in Australia. The authorities want UK pensions for Australian residents to be on the same footing as an Australian pension, so the growth from the date of arrival in Australia will be taxed.
Typically, when tackling a transfer, the firm will work out the value of the UK pension when the client moved to Australia. “If the client emigrated pre –retirement and left their deferred pension in the UK, we use an Australian actuary to work out what it was worth and how much it has grown by and hence the Australian tax due on the transfer. For the purpose of our analysis we reduce the transfer value by this amount. That’s the first job.
“Then we do the transfer value analysis to obtain the critical yield. But, of course, that value is based on UK annuity rates and almost no one in Australia buys an annuity and definitely not a UK annuity, they all use pension drawdown. The analysis also has to take into account that a pension paid from the UK will be taxed in Australia whereas if we transfer the fund over, benefits will be tax free (after allowing for the tax on the growth at transfer and the subsequent growth of the fund whilst in Australia). As the clients do not intend to buy an Australian annuity, we make quite a few comparisons using sustainable withdrawal rates.
Another consideration for the transfer could be hedging the currency in retirement, especially as the Australian Dollar can be a volatile currency.
We also need to factor in that HMRC will not allow transfers of pensions to Australia before age 55, as Australian rules allow pensions to be accessed pre age 55 on hardship and compassionate grounds, which is prohibited in the UK.
“This is why a couple of years ago most Australian QROPs were removed,” Neil explains. “Canada is going through a similar situation now.”
Double taxation agreements (DTAs) can cause issues and lead to ‘grey areas’, he adds. “For example, if a pension remains in the UK, in the DTA between the UK and Australia, whilst taxation rights for regular pension income generally lie only with Australia, there are no provisions for lump sums and these can end up being double taxed. In these situations we look to use a third jurisdiction to make lump sum payments to an Australian resident.”
The Australian tax authorities also do not recognise the tax free status of UK 25% pension commencement lump sums (PCLS) which can be assessed for tax at up to 47%. “Clearly that is something we want clients moving to Australia to be aware of.”
“All this requires that we understand the pension and tax laws in all the jurisdictions that we use and in which we have clients. It also means that we get a lot of referrals from other IFAs because this is a complex area and you do need the knowledge and the contacts on the ground.”
