In a move away from our recent focus on exploring and understanding an individual’s pension journey, we would like to concentrate this article on the recent news announced in the Treasury Minister’s Budget of the 20th February relating to Isle of Man Pensions and the new flexibilities and freedoms that are available.
I’m not a particular expert on Shakespeare – but in ‘Twelfth Night’ (which was the extent of my study during my school years), the Bard’s opening lines are perhaps quite apt given the Treasury Minister’s recent announcement, with some poetic licence on my part ….
If Pensions be the food of love, play on, give me excess of it, that surfeiting, the appetite may sicken, and so die.
Well perhaps a poor poetic licence, but it does set the scene. We have provided several articles on Final Salary transfers to Personal Pensions, the implications of Drawdown and of course Pension Freedoms from a UK perspective. That said, there is and has been increased activity in the Financial Services industry, where members of Final Salary schemes (Isle of Man residents) have been advised to give-up their secure final salary pensions benefits, perhaps that appetite for all things pensions is beginning to sicken and die. Or indeed as we believe, this will spark another rush to exercise the new-found Isle of Man Pension Freedoms and indeed lead to a further frenzy of activity in the industry.
What has changed?
The following provides a quick and brief review of the headline changes for Isle of Man Pensions:-
Headline Changes
By way of a quick summary the key changes announced in the Treasury Minister’s Budget are as follows:-
- AnnualPensionContributionLimit
- Reduced from £300,000 per annum to £50,000 per annum
- Pension Triviality / Remnant Payments
- Withdrawing the full pension in one lump sum
- Trivial pension commutations have been increased from £50,000 to £100,000
- When included with remnant payments, the total amount of pension funds, prior to access, that can be encashed has increased to £142,000
- For pensions that have not previously been accessed, 30% can be paid tax free, with the residual 70%, albeit payable as a lump sum, liable to income taxation at your marginal rate
- Pension Freedom Scheme
- Increase in the age your pension can be accessed from 50 to 55
- Tax Free Cash Lump Sum payment increased to 40% of pension fund value
- Residual Pension Fund value can then be withdrawn as and when required, without limitation and subject to Income Taxation on any payments at your marginal rate
- No requirement to access Pension Fund by age 75
- No taxation of the residual pension fund on death (provided taken within 2 years of member’s death)
- Transfer into the new scheme from existing Isle of Man Pension arrangement will attract a transfer fee charge of 10%
Where are we now?
It is still early days, with the Treasury Minister’s budget speech still reverberating, as the pension industry on the Isle of Man inwardly digests and considers how they can best construct a product that complies with the recent announcement to a change in Isle of Man pension legislation.
Although, the principle announced in the Treasury Minister’s speech is clear, the practical application and unique individual circumstances, which may lead an individual to avail themselves of Isle of Man Pension Freedoms Scheme, are perhaps not so clear, which can quite easily lead to confusion at best and at worst, for the uninformed individual, a decision to exercise these new-found freedoms could mean they are significantly financially worse off.
Not everyone with an Isle of Man pension will be able to access these new freedoms, and even if they are able to, the taxation consequences of having to move your existing pension arrangement into the new scheme can come with a significant taxation charge.
What does this mean?
We are concerned about whether clients, in the first instance, will be able to find free impartial guidance (note: not necessarily ‘paid for’ financial advice), to help them arrive at an informed decision about their options.
As we have mentioned on many occasions before, this really is an area where clients should seek out a Pension Specialist, as the implications of any decision you make, can and will affect your financial future. It is almost impossible to provide a selection of examples, illustrating the advantages and drawbacks of existing pension arrangements versus a new scheme, although one point is clear, each individual and individual circumstances will be unique. Once your retirement provisions are reviewed, in conjunction with your personal circumstances, including cost benefit comparison, personal income taxation position and along with cashflow analysis, with the help of a Specialist Pension Adviser, you can arrive at a fully informed decision.
What can we do to help?
Hopefully this article has prompted you to find out a little more about this complicated, exciting and potentially confusing announcement about Pensions in the Isle of Man. To assist with you on your personal journey and to help inform individuals Hockney Stevens Pension Specialists have produced a free straightforward guide to the changing landscape that is Isle of Man pensions. If you would be interested in obtaining your free guide, please do not hesitate to contact us.
