Banking, Investment & Pension Planning

Banking, Investment & Pension Planning The Malta Independent on Sunday MARCH 2019

BANKING ON CAN WE DO WITHOUT IT’S NEVER TOO MUM AND DAD CHINESE CAPITAL? EARLY TO SAVE A MATTER OF TRUST NO BETTER THAN ROULETTE

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MARCH 2019 |

banking, investment & pension planning

Banking on MUM AND DAD You are likely to be forking out for your child, one way or another, for the rest of its life. hildren are more expensive than you can ever imagine.

They need feeding, clothing, educating and entertaining from the day they are born until …. well several decades have passed. But, of course, they are worth it and there is no reason why they should bleed you dry when there are a number of ways to cushion the cost.

A variety of affordable savings and investment funds are available where parents and grandparents can build up a tidy sum for a child, without feeling too much of a pinch as they do so.

A simple way can be with a bank account with an attractive rate of interest.

A parent, grandparent or legal guardian can open an account for a child. In some cases a child can have two accounts, presumably one as an investment and one to cover certain regular expenses. Anyone opening a child’s bank account has to produce their ID card, the account may be handled by that adult but has to be in the child’s name and very likely the child will have to have been born and reside in Malta.

The initial deposit and subsequent yearly maximum or minimum deposits

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depend on the type of account and the bank in which it is opened. Accounts are usually held until the child is 15, 16 or 18 years of age, again depending on the type of account and where it is held.

During which time it will save money and earn interest on the accumulated funds.

When the account is closed the funds can be transferred to a savings account in the, now adult, account holder’s name.

Different benefits when opening a child’s bank account include a gift when the account is opened, the ability to withdraw funds at pre-arranged intervals and a reduction in the minimum annual deposit amounts when opening an account for more than one child.

There could also be the advantage of children learning not only the value of money, but also the advantages of saving and budgeting for what they might need through the experience of withdrawing a certain amount each week, or managing their savings account from when they reach 10 years old. Parents will still be able to keep an eye on their young entrepreneurs’ activities, naturally.

Money can paid into accounts from gifts for various occasions and from the Children’s Allowance Aside from a bank account in a child’s name, an insurance policy is another way of providing for his or her future.

There are policies designed to plan and allow for a lump sum to be available for certain lifetime landmarks or any un-

foreseen occurrence. Such an insurance policy will build up the capital value of its policy steadily over the years it has to run, providing it is not surrendered during that period.

Finally, you might consider a trust fund for your child as a way to protect its interests in the future. All trusts have individual and specific requirements and could almost be said to be tailormade for the person setting up the trust and the beneficiary. But it is a way to protect your child’s interests in the fu-

ture and allow for all assets to be consolidated and managed effectively.

The increasing costs of education and training for a satisfying career, the recent realisation that Malta is not immune to financial expectations of landlords and developers, the effect world markets and policies have on our island and the culture of wanting to give our children ‘everything’ make it essential to research and consider carefully how we can do the best for them, as profitably, and easily as possible.

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MARCH 2019

EXPERT CONVERSATION

Can we do without

CHINESE CAPITAL? This article is from the “International Economics Campaigning” series of France’s Research Centre in International Economics (CEPII), a CEPII-La TribuneThe ConversationXerfi-Canal partnership. Andrea Goldstein, adjunct professor at the Catholic University of Milan, and Françoise Lemoine, advisor at CEPII, are specialists in the Chinese economy.

They answer questions from Isabelle Bensidoun and Jézabel CouppeySoubeyran, CEPII economists.

Maje, Claudie Pierlot) fashion group. These operations have been met with mixed feelings, between satisfaction and mistrust, and sometimes triggered the vigilance of the public authorities.

In Italy, the phenomenon is less controversial, although the Chinese have significant investments in many sectors: they are in control at Pirelli and several priced fashion or machinery companies, and have significant participation in the energy sector (40% of Ansaldo Energia and 35% of CDP Reti).

nitially, investors from China focused on natural resources, particularly in Africa and the developing world, but their focus has now shifted to manufacturing and services, in Europe and the United States.

Europe has become Chinese investors’ main target, especially Italy, France, Germany and the United Kingdom.

Chinese acquisitions there jumped, more than doubling between 2014 (€14 billion) and 2016 (€35 billion). From high-tech to tourism, real estate, automobiles, food, fashion, energy, no sector escapes.

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What are Chinese companies looking for through these acquisitions?

First, they seek patents, brands and knowhow. This reflects the priority given to technological catch-up in the government’s “Made in China 2025” plan, which was adopted in 2015. What Chinese companies mainly want is to improve their supply, including in their own market where foreign brands are sought after, and meet the demand of a rapidly expanding middle class that is increasingly exacting in terms of quality, safety and image. A typical example is the powdered milk factory currently built in Brittany, whose entire production is destined for the Chinese market.

Is this activism causing concerns?

Yes, quite a few. In particular, there is concern about the role of state-owned enterprises, which are seen as an instrument for political pressure. Europeans are alarmed at the possibility of the Chinese controlling major infrastructure, such as electricity generation and distribution, or sensitive technologies.

There is also a fear of impoverishing the European industrial system if these companies intend to transfer production to China’s domestic market, where social pro-

tections are weak and labour rights and environmental standards are poorly respected.

Finally, there is outrage over the asymmetry between the European market, which is open to Chinese companies, and the difficult-to-penetrate Chinese market. While Chinese investments in Europe are soaring, Europe’s are stagnating in China.

How does this anxiety materialise?

For the time being, Germany and China is where tensions have mainly increased. At the end of 2016, Berlin blocked the purchase of two gems of the German high-tech industrial sector: Aixtron, the semiconductor equipment manufacturer, and a subsidiary of the lighting company Osram.

We’ve seen nothing equivalent in France.

After Dongfeng Motors bought up 14% of French multinational automotive manufacturer PSA in 2014 and sovereign wealth fund China Investment Corporation bought 30% of French utility GDF Suez, Chinese acquisitions multiplied. The year 2015 saw the purchase of French resort group Club Med, the Toulouse airport and the Louvre Hotels group.

Last year we saw the rise of Chinese capital in hotels (Accor Hotels) and leisure property Pierre & Vacances, as well as the acquisition of a majority stake in the SMCP (Sandro,

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5 year period ŵĂƚƵƌŝŶŐ ŝŶ 2023

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How can we promote reciprocal openness between China and Europe?

A first step would be to introduce reliable, transparent rules at the global level that ensure equal treatment of all companies, whether local or foreign, which is far from being the case in China.

A second step would be to establish shared European principles: what should be done when an investment seems motivated by aggressive industrial policies and backed by public subsidies? How can we avoid a “race to the bottom” between EU member countries, each lowering the demands facing Chinese groups wishing to set up shop in Europe?

The rise of overseas investment is one manifestation of China’s growing economic power, and as we have seen it arouses many concerns.

However, for European companies it is also a welcome source of funding to enable more development. Closing the borders would create a risk of escalation at a time when Donald Trump has repeatedly stated that the US and China are in an economic war.

Blind optimism is not the right thing either.

France – like other European countries including Germany – has a legal basis for protecting itself against certain types of foreign investment. But the lack of agreement at European level on a common policy in this area is likely to leave the advantage to Chinese decisionmakers.

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banking, investment & pension planning

It’s never too early to save tarting out in your first job, with a whole working life ahead of you, it hardly seems important to be thinking of what you will live on when you are no longer earning a regular salary.

But, whether or not you can possibly ever imagine having to struggle to maintain a lifestyle you have become used to, now is the time you should give it some thought.

Life expectancy is increasing.

People are staying in work longer, even if on reduced hours. Very soon, especially where working years are concerned, 70 will be the new 65.

And for those who choose to stay in work, perhaps for the stimulation, there will be an option of taking a job for love, and not just to pay the bills, if there are some savings to fall back on.

The increasing number of women in the workplace, will want to consider how the standard of living they are taking for granted while they are working will be maintained when they stop to enjoy some well-earned ‘us time’ with their

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families. Two pensions are better than one for wives who have been used to earning their own spending money.

It is generally felt that relying on the State pension alone is not a good idea. At present level it would only provide a modest income and certainly not leave room for little extras, or in some cases, sudden unseen demands. And many people, especially those with dependents, often feel that taking responsibility for your own financial future is a wise and reassuring thing to do.

Obviously, the younger you start a pension plan the better.

Starting premiums increase according the age of those taking them out.

Through various private means you can pay into an investment fund that will top up your pension. A pension plan is a long term investment and delaying its start by only a few years, means you could lose out a lot. The money in your pension scheme doesn’t just lie there doing nothing. Properly invested it has more time to grow.

The decision on how you de-

Of all the things to spend your first pay cheque on, a down payment on your future is the most important.

cide to make these investments will rest on which method best suits your life style and the financial obligations you already have. Make time to do some serious research and find sound advice you can trust. The value of your investment can go down as well as up, and your returns may be less than invested. So, although it may seem like ages before you need to call on your pension fund, consider that investments that carry any risk will need time to recover from any loss or low in-

terest rates which could affect your grand total.

You can also consider the advantages of an occupational pension scheme, designed to provide a lump sum on your retirement, and the tax benefits, offered to savers. There are several Maltese companies that have set up and offer these workplace pensions, where employee and employer pay in.

And, if you were to change your place of work, it should always be possible for you to have the pension transferred in

your name, and put into another pension scheme. Should your new employer operate a similar contributory pension scheme, you could move the pension savings to your new job’s system.

Whatever retirement plan you invest in, your account can grow faster because some of the income on which you would pay taxes each year will remain in the account. Whatever form of tax relief you get on pension savings does make them worthwhile in the long run.

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MARCH 2019

Online banking stay secure nline banking may be a secure and convenient way to use banking services, but we all know how many incidents occur that give cause for doubt as to how safe the contents of our accounts really are.

Fraudsters, with increasing talents and means may be trying to gain access to your account with the intention of discovering security information, such as your username, passwords or memorable information.

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Banking safely online Never use a link in an email, even one you think has come from your bank, to log into your bank website. Type the web address into your browser.

Suspect any unexpected or suspicious looking pop-ups that appear during your online banking session.

If the process you normally go through to make a payment to someone differs from the last time you used it stop and reconsider your action.

Fraudsters will sometimes claim they are ‘testing’ to trick people into making a real payment.

Your bank will never request your login details in full, either in an email or by phone. Never give these to anyone.

Check what online banking security options your bank provides, and take advantage of any free anti-virus and browser security software.

Browsers often come with “make sure” security features built into your browser is activated.

Contact your bank immediately if you notice any transactions in your statements that you did not authorise.

Always double check the amount you are sending, the account number and the sort code of any account into which you are putting money via your online bank account.

Keep your bank details up to date and ensure that your bank has your current contact details.

Customer security checks Different banks use different systems or authentication devices to prove that you are the genuine customer when you access online banking services. These may be issuing you with a key-fob device that produces a one-time passcode, a pocket-sized card reading device that you insert your debit card into, which also produces a one-time passcode.

Not all banks offer these authentication devices, which is not to say their online banking product is not as secure as others. All banks have different security procedures to keep their customers safe, which are not visible but which work away in the background to protect your authentication devices as part of their online banking offering.

Mobile Banking A mobile device with an internet browser should enable you to access your bank’s website just as you would if you were on a traditional computer.

With a smartphone, download a dedicated app provided by your bank. But always follow the advice below when downloading a piece of software onto your

smartphone.

Take care when clicking on links contained in a text message or email. Don’t answer unsolicited messages or voicemails on your phone. Banks never email customers or send text messages to ask for their PIN or full password.

Only use your bank’s official app. Only download apps from official app stores. Free apps from unofficial or unknown sources could lead to a virus infection.

Keep your smartphone’s operating system updated with the latest security patches and upgrades. And do not remove any security controls from your mobile device without careful consideration.

You could weaken the security of your device leaving it exposed to additional risks, and cause some banks to restrict or prevent you from using their services.

Do not store your mobile banking security details, or passcode on your device, or give them to anyone else. For added security you should set up a password or PIN to lock your mobile devices for extra security; and use the anti-virus tools available for them.

None of these tools alone can guarantee 100% protection all of the time but together they will considerably reduce the chances of your computer becoming infected and fraudsters capturing your sensitive information.

Are you a victim of fraud?

Contact your bank the minute you suspect any unauthorised transactions on your online bank account. You have legal protection, meaning that you will not be liable for any losses if you are a victim of

fraud, as long as you have not acted fraudulently and have used reasonable care, such as using and regularly updating security, installing and using a personal firewall, downloading the latest security updates for your web browser and operating system.

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MARCH 2019 |

banking, investment & pension planning

Trust are becoming a popular way of managing property or funds for third party beneficiaries.

trust can comprise cash, property, and other investments and assets and is set up by a relative, guardian or organisation so that a beneficiary can benefit from the trust. It is a particularly effective way of ensuring financial security for one’s children or grandchildren, or the continuation of a project, scholarship or philanthropic organisation.

Trust funds have several advantages, especially the fact that they allow you to put conditions on how your assets are distributed after you die. Estate and gift duties are reduced and the distribution of your assets can take place without the hassle delay and cost of the probate court.

Malta’s legal system has recognised trusts since 1984, and the country introduced the main legislative framework regulating the setting up of Malta Trusts, The Trust and Trustees Act, in 2014.

This ensures the highest level of security, and provides for strict regulations relating to the authorisation and supervision of trustees, and also incorporates the Hague Convention on the Law Applicable to Trusts and on their Recognition which Malta has ratified.

Maltese law defines a trust as a committment by one or more individuals or entities (trustees) to manage and control a property or funds for third parties (beneficiaries) as agreed in the terms and conditions of the said trust. The law covers a wide variety of trusts and foundations that may be used for different purposes.

Trusts in Malta are formed by the person offering the trust property or funds (the settlor), the trustees who manage the trust and the beneficiaries who benefit from it. To set up a trust, a trust deed needs to be drawn up, to identify all persons and assign them to the various roles as mentioned above – the settlor, trustee(s) and beneficiaries. The object of the trust is referred to as property which can be any type of asset – movable or immovable.

One of the main aspects of trusts is that they make a distinction between the legal ownership of the trust and the ultimate beneficiary.

There are three types of trust – express trusts, implied trusts and constructive trusts.

Trusts can be set up in Malta under the country’s statutory regulations and are monitored and regulated by the Malta Financial Services Authority, which also regulates the authority of trusts by trustees. Most legal firms or companies will han-

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A matter of TRUST dle trusts but they must apply to the MFSA for authorisation to carry out trustee services.

A trust from overseas can be redomiciled in Malta, if the trustees migrate to Malta from an approved jurisdiction, without the need to liquidate and reform it.

Overseas, it is widely accepted that trust funds are generally financially beneficial. But, locally, the costs of setting one up are high. And the many areas where trust funds might provide advantages and protection in the

case of tax claims, death duties etc. depend on so many issues, including where and when they were set up, how they operate, where their income originates and whether at least one of their trustees is domiciled in Malta.

Anyone considering setting up a trust fund, for their own peace of mind and security needs to consult trusted experts and make sure they understand every stage of the procedure and exactly how it will work for them, compared with any other saving or holding system.

“Maltese law defines a trust as a committment by one or more individuals or entities (trustees) to manage and control a property or funds for third parties (beneficiaries) as agreed in the terms and conditions of the said trust. The law covers a wide variety of trusts and foundations that may be used for different purposes.”

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MARCH 2019

No better than roulette.

How foreign exchange trading rips off mum and dad investors Mark Crosby In 2013 I wrote a piece on The Conversation arguing that foreign exchange trading should be much more tightly regulated.

In particular, I said that retail (mum and dad) investors should only be allowed to trade foreign currencies in limited circumstances. Since then there has been little change. It is still shockingly easy for a retail investor with a very limited understanding of foreign currency to trade foreign exchange, as was demonstrated on ABC 7.30 on Wednesday night.

There is a basic difference between foreign exchange trading and other forms of investment such as share trading. Over time, share markets tend to rise, so that if an investor buys a diversified basket of shares, or even an individual share, they should expect a positive return over time. Of course markets go up and down, and individual share trades can go wrong, but in the long run the market tends to rise.

Share trading it isn’t Foreign currency markets are fundamentally different, in that there is no reason to expect exchange rates such as the Australian-US dollar rate to rise or fall over any short- or medium-term trading horizon.

For 30 or more years, academics have tried to build models to predict exchange rates. None of them work.

If even the most sophisticated academic or trader built

a model to predict whether the AUD/USD would go up or down tomorrow, they would get it wrong 50% of the time – exactly the same as a coin toss. This means trading foreign exchange on the basis of whether major currencies will go up or down is exactly the same as playing two-up!

Losses can exceed what you put in The second reason that retail investors should be wary of foreign exchange trading is that many promoted products are highly leveraged - funded by borrowing. The Australian Securities and Investments Commission has clear warnings about foreign exchange trading on its Moneysmart webpage, including a case study of a typical trader who invests A$500 to borrow to buy A$100,000 at an exchange rate of 91 US cents.

With this contract, a fall in the USD/AUD exchange rate to 88.5 US cents sees this trader lose A$2,825, meaning they have to pay another A$2,325 in addition to the original A$500 to close out the contract.

If foreign exchange trading is so risky, and in my view no different to playing two-up or roulette, why do we allow retail investors to leverage into these products?

The problem, as I see it, is that regulators can take one of two approaches to investors. The traditional view is that if investors have enough information they will make informed choices in their own best interests.

Economists describe this as behaving rationally. The ASIC approach is very much based on this view: provide good information and let investors make informed choices.

Information isn’t enough There is a second view that is gradually replacing this view of individuals as rational. The “behavioural economics” approach examines the psychology and actual approaches of individuals in different circumstances, to explore departures from rationality. Unsurprisingly, in many arenas people are irrational, creatures of habit, ill-informed, and so on.

An implication is that sometimes people ought to be protected from their own poor decisions, even though that might limit choice. I would argue strongly that there is no reason for retail investors to trade foreign exchange, and certainly no reason to borrow to do it.

Measures to limit such trading, except in circumstances where an investor can demonstrate their expertise, ought to be encouraged.

We’re a magnet for promoters This is very far from the case in Australia currently. In fact Australia is seen as an attractive location for firms offering retail foreign exchange trading. Websites offer “training and tips” and then allow trading inside 24 hours.

I have spent 30 years studying foreign exchange markets and would still say that I’m not sophisticated enough to trade them. Maybe I’m dumb, but I’m not crazy enough to trade foreign exchange.

Mark Crosby is a Professor, at Monash University This article was forts published in The Conversation

Saving, Investing and Accumulating Efficiently for your future enjamin Franklin once said there were only two things certain in life: death and taxes. Keeping these two facts in mind when thinking about your retirement phase of life is very important as the investment made in advance in preparation of this stage in your life-cycle is indeed a must. The Chinese have a saying – dig the well before you are thirsty.

With Legal Notice 228 of 2017 the Government of Malta provided the legal platform for employers to set-up their own occupational pension scheme in order to help their employees save for a better future in a tax efficient manner for both the employer and employee. The idea of offering and participating in such schemes has a number of benefits.

Firstly - a common problem employers are today facing is finding and retaining a pool of talented employees. The introduction of occupational pension schemes by employers has proven to be an effective one to help find talent and reduce employee turnover rates.

Secondly, the investment returns generated within such schemes benefit from two elements. a) Throughout the time during which investment returns are generated (within such schemes), such returns

B

are not subject to tax. This allows the generation of wealth creation to happen much quicker within the scheme rather than outside of a scheme; and b)Economies of scale. Investing with a pool of investors allows the small individual investor to have their capital managed and invested much more efficiently when compared to trying to replicate the same.

Within an appropriately structured and well managed scheme, participants could see substantial wealth generation over their membership period as a result of tax efficiency and investment returns.

There are instances were using a relatively cautious investment approach, participants could see their foregone income almost doubling in value over a twenty year period.

Lastly, we believe that a reason which stands a cut above all is one of responsibility. The points referred to above are the pillars behind the numerical reasons to have an occupational pension scheme in place. These are valid and undoubtedly a prerequisite to achieve a

wide adoption of such. Having said that, we believe that the most important driver is the sense of responsibility an employer has towards their employees.

This in itself is not a result of a mathematical equation which makes direct numerical sense but a journey towards a long-term objective which places the employer in a league of their own amongst their peers.

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MARCH 2019 |

banking, investment & pension planning