A couple of times a year I make a family visit to the UK.
Regular breaks from Jakarta and Bali help to remind me what
things are like for those who have not chosen the expat way
of life. My latest trip over Christmas and the New Year provided
further confirmation of the financial pressures on ordinary
folk. Many of these pressures reflect the changing demographics
of the country. The following are some of the items that featured
prominently in the press and on TV.
Pensions black hole grows by £10 billion in a year
Pensions related to final salary are gradually disappearing
in the UK and other western countries. Just before Christmas
it was announced that one of the top 100 companies in the
UK, Rentokil, was to abandon its final salary plan. Other
major companies are now expected to follow suit. The black
hole reflecting the fund deficits facing the top 100 companies
was reported to have grown by £10 billion in the year
to £75 billion. It is not just the UK that is affected.
In the first week in January the giant US company, IBM, announced
it too would be freezing its US$14 billion pension plan from
2007. It does not mean that pension plans would end but that
henceforth they would reflect actual values as with personal
pensions and would no longer be related to final salary. Pension
reform is high on the UK government’s political agenda,
as it is in many other countries.
National Health Service creaking at the seams
The great Welsh politician, Aneurin Bevan, is renowned for
his founding of the National Health Service in the UK in 1948.
The scheme was an example of how a country could provide a
completely free health service for the entire population.
At that time however, expectation of life was just a few years
beyond the retirement age of 65. What the great man did not
anticipate was that half a century later people would be living
into their 80’s and beyond. As a result of this change
the service is struggling. A hospital that recently performed
a minor heart operation on Prime Minister Tony Blair announced
it was cancelling the waiting list for similar procedures
as it no longer had the funds to carry them out. Which leaves
patients no option but to pay for the operation themselves,
unless they have private medical insurance, which most people
in the UK do not have.
Personal debt is growing
Personal debt, including mortgages, bank loans and credit
cards was reported to be reaching record and unsustainable
levels. Much of the debt has been fuelled by the rising values
of properties. Those who have not had to raise huge loans
to buy a property have been tempted to borrow heavily against
the higher value of their homes. This is a situation that
can spell disaster should there be a rise in unemployment
or a collapse in property prices or worse still, both. Banks
are accused of lending irresponsibly without conducting proper
credit worthiness checks on applicants.
Implications for expats in Bali
Where pensions are concerned the position of expats in Bali
is far more serious than that of westerners living in their
home countries. There is also a great lack of awareness of
the crisis since the subject is of no interest to the local
media. While those living in the West now have to face the
reality of smaller pensions or alternatively higher contributions
to maintain current levels many, if not most, long term expats
in Bali have no pension plan at all! When I raise the subject
the response is often that there are more pressing demands
on financial resources and that this is something that can
be put off until tomorrow. Some rely on the value of their
property or business as a substitute for a pension but this
can be highly risky.
Where medical care is concerned most expats are aware that
there is no free medical service in Indonesia and if they
are wise they will have appropriate medical insurance. In
some respects this makes them better off than their counterparts
at home. But if you are planning to visit home do not expect
automatic access to your country’s free health service.
In the UK it is no longer available to those residing outside
Europe, except in an emergency.
The one area where expats are almost certain to be better
off than their counterparts is in terms of debt. Probably
because it is not easy for foreigners to raise loans in Indonesia
very few carry any serious debt. There are other areas such
as climate where most expats would agree they are better off
than at home. A few days of grey skies and cold drizzle reminded
me that Bali offers many compensations for the comforts of
the UK.
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions regarding personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
