Time to take a fresh look at your pension?

The Treasury Minister’s Budget of the 20th February, announced a number of changes to the treatment of Isle of Man Pensions and the introduction of the widely anticipated pension flexibilities via the new Pension Freedom Scheme, available from 6th April 2018.

Headline Changes

By way of a quick summary the key changes for Isle of Man Pensions announced in the Treasury Minister’s Budget are as follows:-

1. AnnualPensionContributionLimit
   1. Reduced from £300,000 per annum to £50,000 per annum
2. Pension Triviality / Remnant Payments
   1. Withdrawing the full pension in one lump sum
   2. Trivial pension commutations have been increased from £50,000 to £100,000
   3. When included with remnant payments, the total amount of pension funds, prior to access, that can be encashed has increased to £142,000
   4. 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
3. Pension Freedom Scheme (PFS) – a new type of Isle of Man Pension
   1. Increase in the age your pension can be accessed from 50 to 55
   2. Tax Free Cash Lump Sum payment increased to 40% of pension fund value
   3. Residual Pension Fund value can then be withdrawn
   4. as and when required, without limitation and subject to
   5. Income Taxation on any payments at your marginal rate
   6. No requirement to access Pension Fund by age 75
   7. No taxation of the residual pension fund on death (provided taken within 2 years of member’s death)
   8. Transfer into the new scheme from existing Isle of Man
   9. Pension arrangement will attract a transfer fee charge of 10%

Where are we now?

Many Isle of Man Pension Scheme providers are in the process or have already constructed a product that complies with the recent announcement to a change in Isle of Man pension legislation, and as mentioned above the new Pension Freedoms Scheme (PFS) contract became available for new pension contributions, or in certain cases, transfers from existing Isle of Man Pension arrangements from 6th April 2018

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. The new options 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 transfer their existing pension arrangement into the new PFS and even if they are able to, the taxation consequences of having to move your existing pension into the new scheme can come with a significant taxation charge.

What does this mean?

If you are considering transferring an existing pension arrangement to the PFS, in the first instance, we believe the ability to find free impartial guidance (note: not necessarily ‘paid for’ financial advice), to help you arrive at an informed decision about options available, is a priority.

However, this is quite a complex area, where clients should seek advice from 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 the new PFS.

Although one point is clear, each individual and individual circumstances will be unique, and once 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.