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  • FIRST POST
    • suts
    • By suts 16th Sep 17, 9:11 AM
    • 6Posts
    • 0Thanks
    suts
    US Dollar Fund
    • #1
    • 16th Sep 17, 9:11 AM
    US Dollar Fund 16th Sep 17 at 9:11 AM
    Hi

    Hoping I can get some advice with regards to a US Dollar fund I hold. I am aged 44.

    My employer is based overseas and previously offered a savings scheme whereby I contributed a percentage, they matched it and added some more and the whole thing was invested in a Fidelity Fund. I am paid in US Dollars so the complete fund is in Dollars. The current value of the fund at today’s Ex rate is £131000. The fund details are as follows.

    • 75.93% - Black Rock World Equity Index
    • 12.06% - BLK Global Government Bond
    • 12.01% - Fidelity Global Corp Fund.

    Recently my employer decided anyone resident in the UK would have to join their new UK pension scheme and would no longer be able to invest in the Fidelity savings scheme. This scheme is a Legal and General Flexible Drawdown Lifestyle scheme. The current value of the fund is £28644 and the fund details are as follows.

    • 80% - Global Equity Fund (BA13)
    • 20% - Multi Asset Fund (BA23)

    I am UK resident so the L+G scheme offers me the usual Pension tax benefits.
    My immediate concern is the strengthening of the pound and subsequent reduction in the value of the Fidelity fund due to the ex rate.

    My question is should I start removing money from the Fidelity pot and pay it into my new UK pension scheme or should I just leave it there for another 10 or so years where it will hopefully grow in value.

    Where do you think this money is going to work better for me?

    Thanks in advance
Page 1
    • EdSwippet
    • By EdSwippet 16th Sep 17, 10:01 AM
    • 548 Posts
    • 514 Thanks
    EdSwippet
    • #2
    • 16th Sep 17, 10:01 AM
    • #2
    • 16th Sep 17, 10:01 AM
    My immediate concern is the strengthening of the pound and subsequent reduction in the value of the Fidelity fund due to the ex rate.
    Originally posted by suts
    When you hold a fund, the exchange rate that matters is that between the pound and the currency of the items that the fund itself holds, and this may or may not be the same as the fund's denomination currency. For example, you could hold a fund denominated in USD but which only holds UK FTSE 100 stocks. If the USD/GBP rate were to halve overnight(!), the 'net asset value' of the stocks it holds as measured in USD would effectively double. So you would go from hold a fund worth say £100 at $131/unit to one still worth £100 and now at $232/unit.

    A fund's internal 'accounting' currency is actually immaterial to you, then, and you need to separate that out from the currency of the fund's underlying holdings. Assuming none of your current Fidelity funds are currency-hedged -- you should check this -- the global funds should behave for you exactly as would pound-denominated funds holding the exact same stuff. The corporate bond fund might be US corporate bonds only, in which case that is the portion with the potential for maybe being a bit sub-optimal for a UK based investor. You can check this too.

    By and large, your existing Fidelity stuff is probably okay.

    I am not sure how this plan is constructed, though. Your statement that the pension is all in US dollars is confusing. Is this just the way Fidelity chooses to present the results from a more-or-less 'normal' UK pension, or is this really a US retirement savings plan, for example an IRA or a 401k? If the latter you won't be able to directly move this to a UK pension. The US pension system is entirely closed to things like QROPS, both in and out.

    This scheme is a Legal and General Flexible Drawdown Lifestyle scheme.
    Originally posted by suts
    Nothing wrong with Legal and General, but I would look more closely at the Lifestyle part of this. Lifestyle funds generally move away from equities and towards bonds as you reach (some definition of) retirement age. This was reasonable in the days when people bought annuities to cover retirement, but with annuity rates now so low they are under the floorboards, and with flexi-drawdown available since a couple of years back, most people now will not want annuities, making Lifestyling inappropriate.

    If this is your employer's default option and you have a broader choice of funds available in your plan, consider moving to something without that equities-to-bonds automatic transition. It doesn't have to be a complicated set of funds -- it could even be the 80/20 split that you quoted, just direct rather than with the Lifestyling component. That asset allocation is fine, it's just the allocation shift that will occur as you get close to retirement that is the potential problem.
    • suts
    • By suts 16th Sep 17, 11:21 AM
    • 6 Posts
    • 0 Thanks
    suts
    • #3
    • 16th Sep 17, 11:21 AM
    • #3
    • 16th Sep 17, 11:21 AM
    EdSwippet,
    Where do I start, thanks for your extremely concise and detailed reply which is very much appreciated.

    I think I now understand your explanation of a funds internal accounting currency which makes me feel more comfortable.

    I may have not explained myself clearly enough with regards the Fidelity fund. The fund is simply a savings vehicle. It is not a UK pension i.e it offers no tax relief etc. and it is not a 401K. I also have full access to 100% of the funds since my employer moved me into its UK pension fund.

    With regards the construction of the plan I took the following statement from some plan literature.

    The plan is a defined contribution savings arrangement established under a trust deed and rules in the Isle of Man. The plan is registered with the Isle of Man insurance and Pensions Authority (The IPA) as an authorized scheme under the Isle Of Man Retirements Benefits Act 2000 (the Act) and Retirements Benefits Scheme (International Schemes) regulations 2001 (The regulations). The plan is approved as tax exempt by the assessor of income tax for the purpose of the income Tax Act 1970. The plan is administered by Fidelity on behalf of the Trustee, Boal & Co.

    I do not fully understand the line that states the plan is approved as tax exempt. Do you?

    Just been looking at the Legal and General Literature and you are correct the lifestyle fund will start very shortly to move away from equities and into bonds. I am however able to change the fund to one of my choice so I will definitely look into keeping fixed at 80/20

    The fidelity funds were also marketed as “lifestyle” and as you can see are already moving away from the 80% holding in equities. Do you agree I should look into changing this as well to hold the equities at 80%?

    Thanks again.
    • EdSwippet
    • By EdSwippet 16th Sep 17, 2:46 PM
    • 548 Posts
    • 514 Thanks
    EdSwippet
    • #4
    • 16th Sep 17, 2:46 PM
    • #4
    • 16th Sep 17, 2:46 PM
    I may have not explained myself clearly enough with regards the Fidelity fund. ... I do not fully understand the line that states the plan is approved as tax exempt. Do you?
    Originally posted by suts
    No, sorry. It's not quite clear even whether or not this is a tax-deferred pension under UK tax rules, though one would hope that it is. I have never encountered anything like this before.

    When you paid into it (or your employer did), were those contributions from pre-tax or post-tax (or otherwise taxed) salary? If the first of these, it's a pension of sorts and you have to consider UK pension tax rules, and perhaps also those of the IOM/UK tax treaty. Otherwise it'll be closer to a normal unwrapped UK trading account, and there different tax rules apply.

    Scour your plan documentation carefully for clues, and if necessary get your employer's HR department to provide guidance here. Don't trust random strangers on the internet to give you the full skinny here. Including me. I'm guessing at the moment.

    Also worth keeping in the back of your mind that anything you might hold with a connection to the IOM or other Crown Dependency can be something of a 'red flag' to HMRC, so you'll want to be doubly careful to be on solid ground tax-wise here. Holding funds 'offshore', including in so-called tax havens, is not illegal in the UK, although HMRC does its utmost to give the impression that it is. (Also, notice regular conflation between illegal tax evasion and legal tax avoidance.)

    The fidelity funds were also marketed as “lifestyle” and as you can see are already moving away from the 80% holding in equities. Do you agree I should look into changing this as well to hold the equities at 80%?
    Originally posted by suts
    No easy answer, as everyone's risk tolerance and return requirements are different. Asset allocation introduces a whole big new set of unknowns that it seems you've skirted so far.

    While you could go to-and-fro on this virtually forever, at age 44 I don't think you'd go far wrong sticking with 80% equities at this point. A rule of thumb is age-in-bonds, but many people see that as too conservative when it comes to capturing long-term growth.

    Either way, the big concern is reaching age 68 and finding that your pension moved from stocks to bonds behind your back in the preceding 20 years without you noticing, and as a result has positioned you ideally for an annuity you don't want and poorly for flexi-drawdown that you do want. Simply by moving from Lifestyle options into an allocation that you control yourself, you can avoid that. You then have decades to spend zeroing in on your ideal stock/bond split as your circumstances change.
    • bostonerimus
    • By bostonerimus 16th Sep 17, 3:00 PM
    • 879 Posts
    • 443 Thanks
    bostonerimus
    • #5
    • 16th Sep 17, 3:00 PM
    • #5
    • 16th Sep 17, 3:00 PM
    The funds you have seem ok to me, the bigger question is the domicile of your Fidelity funds. If they are outside of any tax wrapper and domiciled in the US then you will have to deal with US taxation and potentially UK taxation on non-reporting funds. If they are in the UK then you have the usual UK tax free allowances.
    Misanthrope in search of similar for mutual loathing
    • suts
    • By suts 16th Sep 17, 4:52 PM
    • 6 Posts
    • 0 Thanks
    suts
    • #6
    • 16th Sep 17, 4:52 PM
    • #6
    • 16th Sep 17, 4:52 PM
    Thanks again.
    Yes I agree the setup of the fidelity scheme is slightly out of the norm but surely above board considering the size/reputation of Fidelity.

    The company I work for are American with offices around the world including the UK. I am a UK resident for tax purposes but work around the world for the US office and am paid in USD.

    The payments into the scheme were pretax, my tax is calculated by means of a SA. I am also taxed on the payments as they form part of my taxable income. I agree with yourself and Bostonerimus it is something that needs looking into further.

    I feel like I am on a role this morning so decided to take a closer look at some things, this forum is inspiring. I’ve been reading about asset allocation previously on here and have come up with the following.

    Apart from the above investments I have a small amount in a paid up Aegon fund.

    Legal and General Pension. Current value £28644 and currently paying in around £1200 per month
    • 80% - Global Equity Fund (BA13)
    • 20% - Multi Asset Fund (BA23)

    Fidelity Fund. Current value £131000 and paying nothing into it.
    • 75.93% - Black Rock World Equity Index
    • 12.06% - BLK Global Government Bond
    • 12.01% - Fidelity Global Corp Fund.

    Aegon Pension. Current Value £29680
    • % Unclear – Scottish Equitable Omnis MM Adventurous (£26432)
    • % Unclear – Scottish Equitable Blackrock Gold (£3248)

    Looking closer at the 3 main funds the asset allocation as per fact sheets found on Trustnet are “basically” as follows.

    L+G Global Equity Fund.
    • 61% USA
    • 18% Europe
    • 10% Japan

    Fidelity World Equity Index
    • 50% USA
    • 8% Japan
    • 6% UK

    SE Omnis
    • 35% UK
    • 13% Asia
    • 10% USA

    How does this allocation look and if it’s not good what should I plan to do?

    Thanks again.
    • bostonerimus
    • By bostonerimus 16th Sep 17, 5:34 PM
    • 879 Posts
    • 443 Thanks
    bostonerimus
    • #7
    • 16th Sep 17, 5:34 PM
    • #7
    • 16th Sep 17, 5:34 PM
    Thanks again.
    Yes I agree the setup of the fidelity scheme is slightly out of the norm but surely above board considering the size/reputation of Fidelity.

    The company I work for are American with offices around the world including the UK. I am a UK resident for tax purposes but work around the world for the US office and am paid in USD.

    The payments into the scheme were pretax, my tax is calculated by means of a SA. I am also taxed on the payments as they form part of my taxable income. I agree with yourself and Bostonerimus it is something that needs looking into further.
    Originally posted by suts
    I assume you've arranged with your employer not to have US income tax and payroll taxes withheld and that you are paying UK tax and national insurance. Are you employed by the US company directly or by a UK subsidiary?

    make sure you know the domicile of the Fidelity funds. If they are US you will run into HMRXC non-reporting funds issues.
    Misanthrope in search of similar for mutual loathing
    • suts
    • By suts 17th Sep 17, 7:00 AM
    • 6 Posts
    • 0 Thanks
    suts
    • #8
    • 17th Sep 17, 7:00 AM
    • #8
    • 17th Sep 17, 7:00 AM
    Yes, Thanks for that advice.

    Any thoughts on the asset allocation?

    Thanks again
    • EdSwippet
    • By EdSwippet 17th Sep 17, 9:04 AM
    • 548 Posts
    • 514 Thanks
    EdSwippet
    • #9
    • 17th Sep 17, 9:04 AM
    • #9
    • 17th Sep 17, 9:04 AM
    Any thoughts on the asset allocation?
    Originally posted by suts
    Personally, no. Well, more specifically, only that yours does not match mine, but then you are not me so there is no reason why it should!

    You can spend forever agonising over this -- and some people do, just not necessarily productively -- but the basics are fairly easy to absorb. This paper from Vanguard lays out the ground rules, and this section of Monevator contains practical advice and sample allocations and portfolios (with an open 'passive' bias).

    Once you have your stock/bond/other mix, decide what global regions to use, and in what proportions, whether you will use active funds, passive 'tracker' funds, or a mix. Finally, find a broker or platform that offers what you want with minimal costs. That might well be your existing provider, or you could choose to move to a SIPP held on a normal 'retail' UK platform.

    If you do choose to transfer platform, note that some charge egregiously for unit trusts and OEICs but modestly for ETFs, so you may need to finesse things at the very end to avoid outrageous platform 'fund holding charges'. Hargreaves Lansdown are among the worst offenders here, but several others aren't much better. If you have a decent amount, including the £130k or so originally mentioned, one of the 'flat fee' platforms such as iWeb, Interactive Investor or Alliance Trust Savings are better bets if you are to hold unit trusts and OEICs.
    • suts
    • By suts 18th Sep 17, 8:59 AM
    • 6 Posts
    • 0 Thanks
    suts
    Edswippet,

    Thanks for that great advice and the links.

    You've been a great help and given me positive food for thought.

    Thanks again.
    • aberlyfid_2000
    • By aberlyfid_2000 21st Sep 17, 9:03 PM
    • 19 Posts
    • 1 Thanks
    aberlyfid_2000
    i have some of my pension in the L&G PMC Multi asset but its difficult to ascertain what its exposures are - its quite an active fund, and (up to 80% of) exposure is hedged GBP.

    the fidelity account looks far more diversified in terms of exposure.

    if you are still contributing to the L&G it does not harm to keep the fidelity ones as is, or transfer them into a SIPP, tinker with the allocations, and potentially earn addition releif.
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