Retirement/Pension advice (for a youngster)

[Payanak212]

Hello forum members,

I wish to ask for the advice from those of you that are experienced in this area and welcome any other related advice that could be helpful.

I am from the UK but live and work in Thailand. I can save £800-1000 a month from working here but have no pension scheme. I am about 35+ years from state retirement age and have paid in less than 10 years of national insurance from various jobs I've done over the years. I don't have any plans to return to the UK (quality of life is rather low for my generation in the UK) but if I was financially independent one day it may happen.

I am aware that I can pay NI from overseas for up to 5 years previous. However, I also heard from different people that there are different NI contribution bands, if anyone could advise me specifically which one I should opt for or are even eligible for it would be helpful - particularly if it would affect my ability to get NHS treatment.

Other investments I am looking into include the stock market, ETFs look to be the safest hassle free long term investment. Also, buying a UK property to rent out although it is almost impossible to get a mortgage whilst an expat and I just think the UK market is way overpriced and vulnerable to any shocks to the global economy. If anyone wants to share their thoughts on these or other investments it would be welcomed.

Thanks in advance.

[ExpatJ]

Regarding state pension i doubt there will be a state pension in 35 years time when you retire so maybe a moot point. however...

For NI you need to contact them asap- i stopped paying for several years while an expat and now i no longer qualify- even if i pay lump sum to 'buy' back all the years i missed. So no state pension for me! (Except there is a UK pension anyone can claim at age 82 regardless of whether you paid NI or not, but you have to be based in the UK at 82- its about the same as the state pension i think).

My pension tips- get a job with a decent pension! Ideally, look around for the remaining companies/institutions/government that still give defined benefit pensions- not many around these days- retiring on a defined benefit i.e. guaranteed monthly pension for life- is central to a happy retirement.

Low cost ETFs are the way to go over a 35 year period in your case the difference between a 0.2% annual fee and a 2% annual fee will be 100,000sUS$. Also i would go overweight for riskier ETFs at this stage in your life to aim for higher returns- emerging markets, frontier markets, junk bond ETFs, REITs.

[AyG]

I'll leave the NI contribution aspect to others.

The main advantage of a pension in the UK is that you get tax relief on the contributions you put in it. As a non-resident you don't get the tax relief, so there's no point in opening any sort of pension account. You're therefore looking at putting your savings into some general sort of investment.

If you're working legally in Thailand and paying tax you can get a tax benefit from investing in LTFs (which must be held for 5 years) and RMFs (which must be held until 55). This probably should be the first place to put your savings.

Once these are maxed out I'd then suggest that you open an offshore brokerage account (Singapore and Luxembourg would be my first choices) to hold your additional investments. That way you avoid any Thai or UK taxes (except, possibly inheritance tax).

If you want to go down the ETF route, that's fine. Just bear in mind that by doing so you're limiting yourself to "average" performance (or perhaps slightly worse after fees), and in many markets the best active fund managers can outperform the market. The flipside is that you need to put the work in to identify the best managers, and to monitor their performance.

As for precisely which markets to invest in, that's another question in of itself. You'd need to provide a lot more information about your attitude to risk, and your likely geographical area of retirement. But broadly speaking, you should bias your investments to the currencies in which you're going to make future expenditure. Too many expats simply pile money into their home market simply because they're familiar with it. As an expat the world is your oyster.

I have never seen the attraction of property as an investment. Returns are typically 7% or less (far less than historical returns on equities). Effort is required to maintain the property. Tenants may be hard to find. And if you have only a single property, the closure of a local employer or the opening of a sewage plant next door may not only make tenants turn away, but will also slash the value of your property. On top of that, the UK government is taking away tax benefits from overseas landlords.

Oh, and when the gold bugs emerge on this thread, as they are bound to do, just ignore them. They have a curious ability to turn a blind eye to the historic performance of gold and the irrationality of it as an investment.

[fletchsmile]

...

Low cost ETFs are the way to go over a 35 year period in your case the difference between a 0.2% annual fee and a 2% annual fee will be 100,000sUS$. Also i would go overweight for riskier ETFs at this stage in your life to aim for higher returns- emerging markets, frontier markets, junk bond ETFs, REITs.

Could you expand on the best way for OP to achieve that from Thailand?

He is saving THB 40K to THB 50K a month.

Are you aware of any low cost ETFs at 0.2% p.a., emerging market funds, frontier markets, junk bond ETFs in Thailand?

Presumably you're suggesting he transfers money out of Thailand to save?

What do you think about the FX conversion costs? and bank transfer costs for doing that on smaller monthly amounts like that? Would they eat into annual savings on costs of offshore funds?

How about tax and admin?

Setting up and maintaining the accounts outside Thailand?

How could he boost his savings with tax relief if saving outside Thailand?

AyG mentions LTFs and RMFs from Thailand. These are very useful tax efficient vehicles to buy funds. OP says he's living and working in Thailand. Assuming he's doing that legally he'll be paying tax. If OP can save THB 50K a month I'm guessing he has taxable earnings of at least 1mio a year more likely more. That would mean his marginal tax rate is at least 20%. Possibly up to 30% or even 35%.

So if buying say THB 500K a year (GBP 10K) he could save 20% to 35% in tax by buying onshore LTF or RMF funds in Thailand. Thats THB 100k to THB 175k GBP 2 to 3.5k a year to add to his pot. A massive amount over 35+ years he would be missing out on. How would he get similar uplifts offshore?

While what you recommend may be useful to some people and a good solution. Could you expand how it fits OPs circumstances and addresses the above concerns?

Cheets

Fletch

Edited March 11, 2015 by fletchsmile

[AyG]

I was also suggesting that the OP transfer some of the money offshore.

The OP can put 15% of his income into LTFs and 15% into RMFs each year. Assuming his/her annual income is 1 million Baht, that's 25,000 Baht/month - but he/she says he/she can save up to 50,000 Baht/month, so a home is needed for the excess cash.

I would suggest that the OP put the balance into a brokerage account offshore for a number of reasons:

1. Greater available range of investments
2. Lower charges
3. Outside Thai tax jurisdiction

He would need to transfer money offshore, and there would be costs associated with that. However, over the years and decades they will fade into insignificance compared with the financial drag of Thai fund management charges.

Rather than transfer offshore monthly, he (and I'll assume it's a he from here on, to save typing "/she") should transfer periodically (say yearly or quarterly) to save on charges. The bank would need a letter from his employer to confirm his income, but that's the only real hurdle.

He could also transfer the cashed in LTFs after their 5 year maturity period. (My concern with LTFs is that they are almost all for Thai equities, so there's a danger of being overly exposed to the Thai market. He didn't write that he planned on retiring in Thailand, so a broader range of geographical exposure is warranted. Indeed, it would be warranted even if he did plan on staying here.)

I doubt he'd have difficulty opening an offshore brokerage account. I did so in Singapore just over a year ago and found the procedure straightforward. (Setting up a Singapore bank account would be a very different matter.)

[lucifer666]

I can't advise on Stocks or Bonds, but i paid into the NI for 35 years. I'm from the UK). It means nothing !!!. I worked for the UK ( Government) and now I'm retired ( well, that's another Joke/Story. According to the UK government, my pension is "delayed" somewhere in-between Limbo and buried, under another file, in a dimensional timewarp, caused by the Tardis( Don't ask lol )). Good planning for your future though, you seem like a smart fella, I wish you luck

[Soutpeel]

good for you, your thinking about the future...

[Moonlover]

Hello Payanak.

I also originate from UK. I spent a good period of my life working overseas, but I always paid my class 3 voluntary contributions into the NI. And I’m very glad that I did. I now have a pension for life that is paid directly into my account in Thailand, If you have no other UK sourced income, this pension will be free of tax.

Although it is not large, the leverage factor due to the relatively low cost of living here makes it a valuable contribution to my income.

I recommend that you visit the following website for initial advice:

http://www.adviceguide.org.uk/wales/benefits_w/benefits_benefits_introduction_ew/national_insurance_contributions_and_benefits.htm

Scroll down to Class 3 (voluntary) contribution. You can then following up on that by going to the Government website via the link provided there.

Best wishes.

Edited March 11, 2015 by Moonlover

[Jonmarleesco]

You don't 'opt' for a band; you can elect to pay Class 3 contributions, which also permit you to backdate (carry back) seven years, not five. But whether it is worth your while is another matter, entirely.

The NHS has nothing to do with Class 3 NI contributions, but there is a proposal in the pipeline that will, if passed, allow British citizens to utilise the NHS when in the UK.

It's unlikely the UK housing market is much overpriced - in other words, it's unlikely to go down - but there is no fundamental reason for an expat to be unable to obtain a mortgage, and I don't know where you got the idea there was. However, property is illiquid, and the wrong location, with no tenant, means no income.

[fletchsmile]

Payanak,

For NI I suggest you read booklet "NI38 Social Security when abroad" which gets updated every couple of years

https://www.gov.uk/government/publications/social-security-abroad-ni38

This will explain a lot of what you need to know about paying NI while abroad and entitlements. This also a form called CF83 which you can complete at the back should you decide paying voluntary contributions is right for you.

Please note you may well be entitled to pay Class 2 contributions instead of Class 3. These are much cheaper, and actually have slider wider benefits . I have seen many times on TV and elsewhere other people recommending to pay Class 3, which is somewhat of a legacy of rules under older systems. Basically if you've lived in UK and been employed in UK for 3 years or more you will likely qualify to be able to pay class 2 instead of class 3.

The difference in costs for Class 2 and Class 3 is quite significant: GBP 2.75 per week vs GBP 13.90 per week, i.e class 3 is 5 times more expensive than class 2. Over a year that's 580 quid!

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

I currently pay class 2. Comes to about 150 quid (143? I believe) a year

You'll need minimum of 10 years contributions to get at least some state pension, and 35 years for the full rate. On the info you supplied at the top (35+ years to go) that means you probably have no need to back pay years to make up deficits.

https://www.gov.uk/new-state-pension/how-its-calculated

While the state pension rules has become something of a lottery in the last few decades, and goalposts are forever moving, 150 quid a year for Class 2 isn't much. 723 quid a year for class 3 I find a less clear decision, as bear in mind your pension will be frozen when you start to take it if you live in Thailand

So there's a decent chance THB 7,500 a year (150 quid) or THB 600 is a month would be well worthwhile here to secure state pension and fill in form CF83. Just keep an eye on number of years you pay. No point paying more than whatever is needed to get the maximum, there are no brownie points

Cheers

Fletch

[GavinK]

Fletch, good advice re class 2 NICs but why would they have wider benefits than class 3 but cost less ? What's the catch...?

[tezzaaa]

You could also consider buy to let properties. If you take a long term and can get a mortgage you could maybe buy one or two in Thailand or wherever you can afford and just wait for them to be paid off by people who rent them...

[NeverSure]

Simple. If when young you consistently save 10% of your income in things that are relatively low risk and stress-free, you'll retire rich. As they say, don't put all of your eggs...

When your savings get to the point you can, buy a rental and let it pay itself off so you'll have that asset.

If I had to depend only on what I get from the US Gov for retirement I'd get by, but it would be limiting.

Interest rates won't always be tiny as they are at record lows. Do the math with compounding interest in an amount of your choice and see what 10% of your income would be worth. It's very large.

(Compounding interest is earning interest on your interest as it grows over the years. You get interest on the first year's savings the second year and every year after, and it begins to compound like a snowball.)

Think about it another way. The second year you get interest on the first year's interest, and the next year you get the same plus interest on the first year's interest and every year, for each year, it builds and builds.

Edited March 12, 2015 by NeverSure

[AyG]

Simple. If when young you consistently save 10% of your income in things that are relatively low risk and stress-free, you'll retire rich. As they say, don't put all of your eggs...

Interest rates won't always be tiny as they are at record lows. Do the math with compounding interest in an amount of your choice and see what 10% of your income would be worth. It's very large.

If only things were this simply!

(1) "Relatively low risk" doesn't mean "no risk". I'm guessing this here means things like bonds. Whilst bonds typically pay out a steady stream of income, the capital value can fall (unless held to maturity) - particularly in a rising interest rate environment. The upside is strictly limited.

(2) This totally ignores inflation. Low risk investments usually barely keep up with inflation (if that). Higher interest rates typically occur at times of higher inflation, so you're not really gaining anything.

Given the OP's relatively long time to retirement he can afford to take on quite a bit of risk (albeit diversified risk) in the hope and expectation of higher returns than those available from low risk investments. In my opinion, equities is the best way for him to go.

[AyG]

On reflection, I realise that I overlooked inflation-linked bonds as a "relatively low risk" investment. Investing in US TIPS and UK index-linked gilts should beat inflation (in America and the UK respectively) over the long term with relatively low risk.

Thailand does issue THB denominated index-linked bonds. I think there have been about 5 issues to date. The retail investor can invest in them via Krung Thai Asset Management's KTILF fund. Before investing I would suggest very careful scrutiny of the prospectuses for the individual bond issues.

Here's a link to the relevant Morningstar page describing the KTAM fund:

http://tools.morningstarthailand.com/th/snapshot/snapshot.aspx?tab=0&Id=F00000POO1&ClientFund=0&BaseCurrencyId=THB&CurrencyId=THB&LanguageId=en-TH

[fletchsmile]

Fletch, good advice re class 2 NICs but why would they have wider benefits than class 3 but cost less ? What's the catch...?

Class 2 is a bit more restricted to who is eligible to pay. While both in this context are voluntary there's a few extra conditions to meet for Class 2.

As to why, I think it's largely historical. Originally Class 1 was employed, Class 2 self-employed and Class 3 voluntary for someone in UK. Over the years the lines got blurred with other uses, and Class 3 was for those who weren't eligible for any of the other classes, but did meet a few basic criteria around being in UK. There was also some legal challenges and clarifications several years back as to circumstances in which someone could pay Class 2 rather than Class 3 - probably 7 years or more back - can't remember exactly.

Back then when I researched it, I remember coming across a couple of instances where there might be a catch or disadvantage to Class 2 vs Class 3. From what I remember they were mainly scenarios for changes in circumstances for people living in the UK.

But when we start talking people living abroad and paying into the NI system, I couldn't find any downside to paying the cheaper Class 2 for people living abroad. Each year paying Class 2 for me would count the same as paying Class 3 when it came to pension entitlements. As I was eligible for the cheaper Class 2 I went for it. Not everyone will be eligible so may have to pay Class 3.

However, a lot of people still continued to pay Class 3 out of not understanding the rules, or not being aware of changes. I also sort of recall some people challenging for over-payments as they paid Class 3 instead of Class 2 when rules got clarified. Might be worth googling around and researching for those in that situation - having paid Class 3.

As I say, several years back and my memory's hazy on it. I did spend some time covering my own bases and ensuring there's no catch for me as someone living and intending to live abroad.

Cheers

Fletch

Edited March 12, 2015 by fletchsmile

[KittenKong]

Class 2 is a bit more restricted to who is eligible to pay. While both in this context are voluntary there's a few extra conditions to meet for Class 2.

As to why, I think it's largely historical. Originally Class 1 was employed, Class 2 self-employed and Class 3 voluntary for someone in UK. Over the years the lines got blurred with other uses, and Class 3 was for those who weren't eligible for any of the other classes, but did meet a few basic criteria around being in UK. There was also some legal challenges and clarifications several years back as to circumstances in which someone could pay Class 2 rather than Class 3 - probably 7 years or more back - can't remember exactly.

Back then when I researched it, I remember coming across a couple of instances where there might be a catch or disadvantage to Class 2 vs Class 3. From what I remember they were mainly scenarios for changes in circumstances for people living in the UK.

But when we start talking people living abroad and paying into the NI system, I couldn't find any downside to paying the cheaper Class 2 for people living abroad. Each year paying Class 2 for me would count the same as paying Class 3 when it came to pension entitlements. As I was eligible for the cheaper Class 2 I went for it. Not everyone will be eligible so may have to pay Class 3.

I paid class 2 stamps for 30+ years after leaving the UK, which gave me my total of just over 35 years contributions, and that will give me a full UK pension at the new rates assuming I actually live to the age of 68 and that the UK hasn't gone bankrupt by then.

But I did qualify for paying class 2 stamps as I was self-employed prior to leaving the UK. Most employed people would not qualify, as far as I can see. The main reason for the difference in cost of the two classes seems to be unemployment benefit, for which those who pay class 2 stamps dont qualify. I think there is also some measure of generosity in the lower class

2 rate, or maybe I'm just imagining it.

My class 2 contributions were a cracking bargain that I dont regret paying for for one instant. Anyone who is just starting out now would need to consider what state the UK/global economy might be in in 40+ years time when they come to draw their pension.

[fletchsmile]

Class 2 is a bit more restricted to who is eligible to pay. While both in this context are voluntary there's a few extra conditions to meet for Class 2.

As to why, I think it's largely historical. Originally Class 1 was employed, Class 2 self-employed and Class 3 voluntary for someone in UK. Over the years the lines got blurred with other uses, and Class 3 was for those who weren't eligible for any of the other classes, but did meet a few basic criteria around being in UK. There was also some legal challenges and clarifications several years back as to circumstances in which someone could pay Class 2 rather than Class 3 - probably 7 years or more back - can't remember exactly.

Back then when I researched it, I remember coming across a couple of instances where there might be a catch or disadvantage to Class 2 vs Class 3. From what I remember they were mainly scenarios for changes in circumstances for people living in the UK.

But when we start talking people living abroad and paying into the NI system, I couldn't find any downside to paying the cheaper Class 2 for people living abroad. Each year paying Class 2 for me would count the same as paying Class 3 when it came to pension entitlements. As I was eligible for the cheaper Class 2 I went for it. Not everyone will be eligible so may have to pay Class 3.

....

But I did qualify for paying class 2 stamps as I was self-employed prior to leaving the UK. Most employed people would not qualify, as far as I can see. The main reason for the difference in cost of the two classes seems to be unemployment benefit, for which those who pay class 2 stamps dont qualify. I think there is also some measure of generosity in the lower class

2 rate, or maybe I'm just imagining it.

....

Kittenkong

Seems like you have done well for yourself

Please have a look at the DHSS NI38 leaflet I posted a link to as your statement that most people would not qualify, is misleading in this context. While true for UK it is not true for Brits living abroad.

This is exactly the issue I was trying to highlight that people often get confused or misunderstand this. Also people got used to the older historic rules.

While in UK Class 1 is largely for employed and Class 2 is self employed, there are some key differences for people living abroad.

I was unable to pay Class2 in UK as I was employed so paid Class1.

I have never been self employed so in UK that held.

But if you look at page 9 it clearly says that you can pay Class2 if you are employed or self employed abroad. (Employed and abroad are key differences here to Uk). If you meet certain conditions:

-lived in UK 3 years before

- before you paid at least 3 years NIC

- before you went abroad you were employed or self employed

-Then says you cant pay Class 2 where you are still liable for Class1

So Most employed Brits will be able to pay Class2 if they move abroad and are employed (or self employed) here in Thailand once they are done with paying Class 1 or Class2 in UK. Most Brits will have lived in UK for 3 years and been employed or self employed for 3 years before going to live abroad.

See the difference? This is a key thing for Brits abroad to be aware of.

Also if you look on page 5 that table shows the benefit differences. "Unemployment benefit" has also been replaced by other benefits. While Class 1 is better than Class 2 or 3 if unemployed, You will see Class 2 actually has more benefits than Class 3.

Cheers

Fletch

Edited March 13, 2015 by fletchsmile

[KittenKong]

Yes, it looks as though things have changed somewhat since I stopped paying my contributions. I do know that when I started paying and when I last checked whilst I was paying, the Class 2 stamp was only an option for those who were previously self-employed in the UK. Odd that they should apparently have relaxed the eligibility requirements for the cheaper stamp, but good news for anyone thinking of contributing now.

[fletchsmile]

OP, you didn't give a great deal of info. Suggestions though:

Core strategy

- Invest as much as you can using baht cost averaging in Thai LTF funds. To get tax benefit, build THB assets and reduce currency risk for you living here, plus invest in one of the best long term performing asset classes = equity. Go for non-dividend paying versions, so that the returns will compound tax free for income tax and capital gains tax. Consider UOB Thai Good Governance governance, Aberdeen LTF, Bualuang LTF (from Bangkok Bank AM). All 3 are consistently in top rankings and regularly outperform the index, I hold the first 2. You need to commit for a minimum 5 calendar years

- Build your cash reserves. You should have at least 6 months. Perhaps more. Life is uncertain. Accidents happen, circumstances change, eg marriage, kids, lose your job. Also you don't want to have to sell long term investments in the middle of a crash because you need the funds.

- Look into paying calss 2 NI if you can - with 10 years you probably can

- Revisit your UK pensions. Defined benefit probably leave where they are. Defined contribution, probably find yourself a low cost SIPP provider like Hargreaves Lansdown. On your pot and age stay away from QROPS sellers.

- Build assets in Thailand. But keep some of your old ones in the UK in case you need to go back, as you're earning and building assets here from income, don't rush and bring everything to Thailand. Like your pensions though, revisit what you have in UK, and ensure you're still getting the best from it

Additional/ later strategies

- Look into RMFs for the tax relief. The disadvantage is you have to keep until 55, which is a long time. As an expat you may leave Thailand. For me I only started using these closer to retirement as they are less flexible in locking your money up long term. Although you can get them back just suffer a tax penalty. On the plus side they have wider range of investments, eg local and global equities, bonds, gold, cash etc, than LTFs which are Thai equity only.

- If you can't pay Class 2 , look into paying class 3 later. They're more expensive and I think you said you had 10 years already so only need another 25. Plus for class 3 you can usually back pay miss contributions, whereas I don't think you can for class 2

- As you get pay rises, pay yourself first and invest those rises each month before you get used to higher spending. eg get a 20% pay rise, save 30% of it. Do this every time you can. Keep increasing your % saved

- Look into offshore investments. While starting out at an early age, it's good to build assets here in Thailand and keep some where you came from. As your pot increases start to build some somewhere else/offshore like Singapore as a third dimension. On the amounts you have at the moment I expect just Thailand and UK investments will take up most of your available funds for now, and keep things simpler.

- You can probably get most of what you really need in Thailand or Uk for now. As other posters mentioned, look at cost, but also best returns. Don't be dogmatic though, in some cases active managed funds are a bit more expensive but will produce much higher returns after charges. Other times low cost index tracker unit trust or ETFs may be better value. If you've no idea stick with low cost trackers. But if you try different approaches, with 35 years+ on year side it will pay to learn which ones work best when, educate yourself and keep options open and learn more. If you close your mind and have a dogmatic approach you will lean less, it pays to experiment a little too with small amounts to educate yourself.

Cheers

Fletch

Edited March 14, 2015 by fletchsmile

[AyG]

- Revisit your UK pensions. Defined benefit probably leave where they are. Defined contribution, probably find yourself a low cost SIPP provider like Hargreaves Lansdown. On your pot and age stay away from QROPS sellers.

If the OP's non-resident in the UK (as he may well be from his opening statement) he's going to find it impossible to open a SIPP without going through a UK IFA. The (cheaper) self-directed platforms are simply not going to be available to him. That said he hasn't mentioned that he has any pension to consider transferring.

Incidentally, the OP hasn't returned to the forums since making his original post. I suspect that your nuggets of pure wisdom are going unnoticed by him.

[fletchsmile]

- Revisit your UK pensions. Defined benefit probably leave where they are. Defined contribution, probably find yourself a low cost SIPP provider like Hargreaves Lansdown. On your pot and age stay away from QROPS sellers.

If the OP's non-resident in the UK (as he may well be from his opening statement) he's going to find it impossible to open a SIPP without going through a UK IFA. The (cheaper) self-directed platforms are simply not going to be available to him. That said he hasn't mentioned that he has any pension to consider transferring.

Incidentally, the OP hasn't returned to the forums since making his original post. I suspect that your nuggets of pure wisdom are going unnoticed by him.

Yes opening a new SIPP may be difficult from outside UK, depends whether he has a UK address. Also worth noting that it's easier to transfer an existing pension within UK than open a new one from scratch if you're outside UK.

Cheers

Fletch:)

[fletchsmile]

- Revisit your UK pensions. Defined benefit probably leave where they are. Defined contribution, probably find yourself a low cost SIPP provider like Hargreaves Lansdown. On your pot and age stay away from QROPS sellers.

If the OP's non-resident in the UK (as he may well be from his opening statement) he's going to find it impossible to open a SIPP without going through a UK IFA. The (cheaper) self-directed platforms are simply not going to be available to him. That said he hasn't mentioned that he has any pension to consider transferring.

Incidentally, the OP hasn't returned to the forums since making his original post. I suspect that your nuggets of pure wisdom are going unnoticed by him.

Yes opening a new SIPP may be difficult from outside UK, depends whether he has a UK address. Also worth noting that it's easier to transfer an existing pension within UK than open a new one from scratch if you're outside UK.

Cheers

Fletch:)

Just a quick follow on from that. Here's an FAQ from Hargreaves Lansdown website. As mentioned he will unlikely be able to contribute or add to a SIPP, or open a new one from scratch. He may, however, be able to transfer a registered UK pension scheme into one. Couldn't post earlier as was using phone.

http://www.hl.co.uk/pensions/sipp/frequently-asked-questions#

Cheers

Fletch

Eligibility

• Am I eligible for a Vantage SIPP?

  If you are a UK resident and under the age of 75, you should be eligible to contribute to the Vantage SIPP.

  You may also be eligible if you have been a resident at some point during the current tax year, if you had earnings chargeable to UK income tax or if you or your spouse is a Crown Servant based overseas.

  If you do not meet the above criteria, you may be able to transfer a UK Registered Pension Scheme to the Vantage SIPP, but you are unlikely to be able to make contributions. Before transferring, please ensure you won't lose any valuable guarantees or other benefits, or incur excessive exit fees.

  Please see our interactive SIPP eligibility guide for more details.

[Payanak212]

Thank you to everyone for taking the time to provide such detailed information. I will get in touch with the Inland Revenue and ask about making NI contributions from over here. Class 2 contributions certainly look worthwhile even with all the uncertainty what sort of pension system will exist when I come to retire.

I earn approximately 100k each month and pay around 10K tax. I am looking to take out the Bualuang LTF and deduct some of my tax. I have some ideas to work in other countries for a few years before returning to Thailand but the LTF will save me a around 25% of my annual tax for those years that I work in Thailand.

I have some money paid into pension schemes in the UK, I really have no idea what kind of scheme these are but one was with Hargreaves Lansdowne and another after working in the public sector. I do know the money that these would actually pay out is minuscule (I think an annual letter from a few years back said £80 a year pension if I remember correctly). I might be completely wrong here but my impression is that you don't seem to get such a good deal on the money you pay into pension schemes when I think about what I could make investing the money myself into the stock market or property. If I am wrong here please let me know. I looked at the SIPP, from what I can see the main advantage seems to be the tax offset which I could get as I do not get a UK salary.

Another option I am considering is simply going to work for a year or two in some undesirable sh1t hole country that would allow me to make significant savings in the region of £100K. It will be miserable but knowing I could retire early with financial independence would get me through it.

[Jaggg88]

Your NI contributions have nothing to do with your access to NHS. However as a British Citizen you have full access to the NHS if you live in the UK but if you live permanently abroad you do not currently have access. There is nothing to stop an ex-pat British Citizen returning to live in the UK.

If you make the NI contributions for minimum time (currently 30 yrs but will change soon to 35 yrs) you will qualify for a full state pension and as previously stated it will be tax free if you have no other income in the UK.

Edit: The UK may remove the tax free allowance for ex-pats so the goal posts are constantly being moved.

I would look at making contributions to investment funds somewhere fiscally secure such as Switzerland.

Edited March 14, 2015 by Jaggg88

[KittenKong]

In today's budget the Chancellor announced his intention to discontinue class 2 NICs for the self-employed, so this cheap option of paying for a state pension may no longer be available in the near future and class 3 NICs may be the only choice.

As usual with budgets, the devil will be in the detail.

[ExpatJ]

...

Low cost ETFs are the way to go over a 35 year period in your case the difference between a 0.2% annual fee and a 2% annual fee will be 100,000sUS$. Also i would go overweight for riskier ETFs at this stage in your life to aim for higher returns- emerging markets, frontier markets, junk bond ETFs, REITs.

Could you expand on the best way for OP to achieve that from Thailand?

He is saving THB 40K to THB 50K a month.

Are you aware of any low cost ETFs at 0.2% p.a., emerging market funds, frontier markets, junk bond ETFs in Thailand?

Presumably you're suggesting he transfers money out of Thailand to save?

What do you think about the FX conversion costs? and bank transfer costs for doing that on smaller monthly amounts like that? Would they eat into annual savings on costs of offshore funds?

How about tax and admin?

Setting up and maintaining the accounts outside Thailand?

How could he boost his savings with tax relief if saving outside Thailand?

AyG mentions LTFs and RMFs from Thailand. These are very useful tax efficient vehicles to buy funds. OP says he's living and working in Thailand. Assuming he's doing that legally he'll be paying tax. If OP can save THB 50K a month I'm guessing he has taxable earnings of at least 1mio a year more likely more. That would mean his marginal tax rate is at least 20%. Possibly up to 30% or even 35%.

So if buying say THB 500K a year (GBP 10K) he could save 20% to 35% in tax by buying onshore LTF or RMF funds in Thailand. Thats THB 100k to THB 175k GBP 2 to 3.5k a year to add to his pot. A massive amount over 35+ years he would be missing out on. How would he get similar uplifts offshore?

While what you recommend may be useful to some people and a good solution. Could you expand how it fits OPs circumstances and addresses the above concerns?

Cheets

Fletch

Yes, OP would have to open an online trading account in his home country (etrade, fidelity etc)- thats where the low fee funds are - over his lifetime given he is young, the money saved in fees will far outweigh the tax savings you are talking about.

Fletch- i would recommend that you do some research into fund fees and compounding over time ( i dont mean that in a condescending way, many people dont grasp the concept initially!) . To try and tell a young investor that low fee funds should not be his starting point is rather naughty (though i understand its fun to play the devila advocate!).

Edited March 19, 2015 by ExpatJ

[fletchsmile]

I recommend you broaden your investment understanding and tax. I've regularly run these calcs in Thailand for almost 20 years. Other countries add a couple of decades.

Please reread my post. I recommended LTFs and said OP could supplement with additional strategies including what you mention later.

Here's the real facts on costs:

1) Thai Good Corp Gov LTF

Active managed

Assumed tax saving 30%

Invest 1,428

Net cost 1,000

TER 1.78%

Reduction in yield after 5 years 8.6%

1,428 less 8.6%

=1,305

2) TMB SET50 Fund LTF

Index tracker

Tax saving 30%

Invest 1,428

Net cost 1,000

TER 0.88%

5 Year reduction in yield is 4.3%

1,428 less 4.3%

=1,366

3)iShares MSCI Thailand Capped ETF

Offshore ETF tracker

Tax saving none

Investment 1000

Net cost of investment 1,000

5 year reduction in yield 3.1%

1,000 less 3.1%

=969

So you can see that on the life of a 5 year LTF. What you recommend as a low cost ETF offshore is drastically lower than the 2 onshore Thai LTFs.

Further after the 5 years is up OP could choose your strategy or reinvest in another LTF again or even reinvest in an RMF and get tax relief again. At 30% again!!!

We haven't even touched on returns but your version 3)

-yields 30% less over the 5 year lifespan of an LTF like 2)

- yields 26% less over the 5 year lifespan of an LTF like 1)

Cheers

Fletch

Edited March 19, 2015 by fletchsmile

[AyG]

What Fletch posted set me wondering. Clearly with LTFs one can reinvest every 5 years and get the tax benefit over again. However, that's not possible with RMFs which must be held until 55. So, what is the break even point for fund versus ETF? Repeating Fletch's calculation for the more expensive fund (yes, it's an LTF not an RMF, but that doesn't make any difference to the calculations) and the ETF, the figures are as follows:

5 years 10 years 15 years 20 years 25 years

Thai Good Corp Gov LTF 1300 1173 1046 919 792

iShares MSCI Thailand Capped ETF 969 938 907 876 845

In other words, the break even point is somewhere between 20 and 25 years holding for the higher charges of the fund to wipe out the tax benefits of the LTF.

Notes:

The model assumes that neither the fund nor the ETF grows at all over the period. That's most unlikely. However, it appears sufficient to illustrate the point.

The model doesn't include any allowance for the fact that the ETF will only deliver slightly-less-than-average performance. A carefully selected fund could well outperform significantly over the period.

Fund charges are relatively high in Thailand. In all probability they will reduce over the coming decade or two, pushing the break even point even further into the future. There's much less scope for the ETF to reduce its charges.

[fletchsmile]

Should OP choose RMFs instead there are comparable funds and charges.

If he says 35+ years to UK retirement that implies he is about 30.

That implies he could take an RMF in Thailand and access his entire funds in about 25 years.

Again assuming a net investment of 1,000 in each and leaving aside returns to focus only on costs.

1) and 2) onshore effectively by 1,428 for a 1,000 cost after tax relief.

So after 25 years:

1) Onshore RMF active managed

Reduction due to charges 36.2%

1,428 less 36.2%

= 912

2) Onshore RMF index tracker

Reduction due to charges 19.8%

1,428 less 19.8%

1,145

3) Offshore ETF tracker

Reduction due to charges 14.4%

1,000 less 14.4%

= 856

After 25 years are up OP can take his pot and invest how he likes. At this point he might now consider an offshore ETF for lower charges. I.e 25 years later or just leave here for convenience or other reasons.

However, it should be clear that for the 25 years tie in period the overshore ETF is the worst option of the 3

The facts are though that compared to an LTF or RMF over the committed life of the prodict the saving in fees going offshore does not compensate for the tax saving benefit on an LTF or RMF.

Hence one should be very careful about being dogmatic about low fees just because youve read it somewhere. Especially where tax and tax relief are involved.

When it comes to investment lowest fees are not always best and you need to understand the bigger picture. Thailand expats have options open to them not always available elsewhere.

Play the cards you are dealt when you are dealt them. Educate yourself. Learn and understand the game.

Cheers

Fletch