Dr Exter is an astronomer at the Institute of Astrophysics in Tenerife, Carnary Islands. She has lived in Warsaw and Belfast; the former was a good experience but badly paid.
Dr Exter is an astronomer at the Institute of Astrophysics in Tenerife, Carnary Islands. She has lived in Warsaw and Belfast; the former was a good experience but badly paid. As a result she has a lot of pension contributions and savings to catch up on. Dr Exter has moved frequently, because there are not many jobs in astronomy. But she wants to make her next move her last, and to settle down, either in the UK or Holland.
She wants to save so that when she does settle, she will have money to buy a house and for retirement. She is wondering whether to part-buy with her sister, who is looking to buy in Milton Keynes. She would also like to know the best options for her savings and investments, if she opts to settle in Holland.
We put her case to Meera Patel at Hargreaves Lansdown, Patrick Connolly at John Scott and Partners, and Paul Willans at Blick Rothenberg.
KATRINA EXTER, 34, ASTRONOMER
Salary: around £14,800 after tax.
Savings: £500 in Royal Bank Scotland. £500 in Nationwide.
Investments: 250 shares in Alliance and Leicester. £3,800 in Scottish Widows Isa.
Pension: £2,400 with Standard Life.
Monthly outgoings: Rent £240; expenses £240; bills £15; pension £180; savings £150; holidays £120.
According to Ms Patel, one problem Dr Exter faces is that her pensions liabilities do not match her earnings. She is currently earning in euros but setting aside money for her pension in pounds.
If Dr Exter is looking to settle in a euro-zone country, such as The Netherlands, her current pension arrangements would force her to convert her fund to euros on retirement. This involves a currency risk which simply cannot be determined at this stage. Ms Patel suggests that Dr Exter should speak to a financial adviser in the euro zone, who is also familiar with the pension system in the country she plans to settle in.
Even if Dr Exter decides to move to the UK, her pension fund is short of what she needs to ensure a comfortable retirement. She will need to increase her contributions in order to achieve this.
But Mr Connolly suggests that Dr Exter might not have her priorities right. Although pension savings are tax-efficient, they are not flexible, and as an overseas resident her options are restricted. He suggests that Dr Exter should divert the money she is putting into a pension to cash savings, for a contingency fund and for a deposit for a house.
Mr Willans warns that the Inland Revenue is proposing to remove the time limit on pension contributions for non-residents - currently five years - but also remove the tax relief. If this goes ahead, he cautions, there will be little point in Dr Exter paying into a UK pension fund. She could, of course, resume contributions if she comes back to the UK.
SAVINGS & INVESTMENT
Dr Exter holds a Scottish Widows Environmental Investor unit trust, in an Isa wrapper. Mr Willans says that the fund has underperformed against its peers and the wider UK stock market, growing just 1.9 per cent over the past year. (The FTSE All Share index has risen 10.8 per cent in the same period.) He suggests that Dr Exter should diversify her holdings.
Mr Connolly goes further, and suggests that Dr Exter should sell both her unit trust and her Alliance & Leicester shares, and use the money to fund her house purchase.
Ms Patel points out that Dr Exter does have the option of transferring her investment to another fund, even though as a non-UK taxpayer, she cannot invest further in Isas. Dr Exter has relatively little in the way of cash savings and should look to build these up.
Ms Patel is cautious about the idea of investing in UK property at the present time, in the light of recent price rises. Prices in other parts of Europe have not risen as fast, so the Continent might well offer better value. Again, if Dr Exter continues to earn in euros, it is safest for her to have a mortgage in that currency.
Mr Connolly says that there is no benefit for Dr Exter in buying a house with her sister. She is exposed to a fall in property values; if values rise, how would she access the profits?
Mr Willans cautions that as long as Dr Exter lives in the euro zone, a UK mortgage would expose her to currency risks. Unless she is heading back to the UK, she should avoid a sterling mortgage, even if it is with her sister.
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