In February 2018, the Isle of Man’s Treasury Minister, the Hon. A L Cannan, MHK, introduced new legislation aimed at increasing pension flexibility. The changes became effective on April 6th, 2018, allowing greater freedom in accessing pension benefits and providing more significant tax relief.
Like other pension schemes, the PFS lets you make regular or lump-sum contributions to save for retirement. Let’s look at the differences between the old and new systems and answer some common questions.
What were the key features of the old basis?
Under the previous pension rules (1989 schemes), the key features were:
- Minimum age for accessing benefits: 50*
- Tax-free lump sum: 30% at retirement
- Remaining balance: Used to provide income via an annuity or a SIPP**
- Death tax: 5%
*In some cases, you may access benefits earlier. Consult your adviser for more details.
Note: In certain situations, you may be eligible to receive the full benefits as a lump sum. For more information, speak to your adviser.
What are the key features of the new (PFS) basis?
The Isle of Man Pension Freedom Scheme (PFS) is an effective tool for saving for retirement. Here are three key reasons to contribute:
- Tax Relief – Contributions to your pension earn tax relief, typically at a 20% rate. The maximum annual contribution you can make is either your annual earnings or £50,000 (whichever is lower). There is no other retirement savings product in the Isle of Man with this level of tax advantage.
- Flexibility – Pensions have become increasingly flexible. You can adjust monthly contributions or make one-off payments at any time.
- Tax-efficient Growth – Your pension investments grow in a tax-efficient manner, unlike other investment products.
Can I transfer my old pension plan to a PFS?
You can transfer your old pension into the new PFS, but the Isle of Man Treasury charges a 10% fee. Most people will stop contributing to their old pension, leaving the invested amount and directing future contributions to the new PFS to take advantage of the updated rules. However, transfers may be beneficial in some cases, depending on your circumstances.
Note: This does not apply to UK pensions or defined benefit schemes, as the Isle of Man PFS cannot accept these transfers.
Why should you be contributing to your pension?
Pensions and particularly the latest Isle of Man Pension Freedom Scheme (PFS) have always been extremely effective for saving for retirement in the future. There are three main reasons why you should be contributing into a pension scheme:
- Tax relief – any contributions you make into your pension plan will grant you tax relief on those contributions; for most people, this will be a relief rate of 20%. The maximum you can contribute per annum to take advantage of this is your annual earnings or up to £50,000 – whichever is the lowest. There is really nothing else like it on the market for Isle of Man residents and tax-payers.
- Flexibility – as time has gone on, pensions have become more and more flexible and are likely to become even more so in the future. Monthly contributions can easily be increased/decreased/stopped and will also accept single or one-off payments.
- Tax-efficient investment growth – the money in your pension plan will be invested, and whilst it is invested, will be growing in a tax-efficient way, unlike that of other investment products.
Where will my pension be invested?
Your pension funds won’t just sit idle. At Osborne Financial, we work with the top pension providers in the Isle of Man. We offer a variety of investment options to suit your goals and risk appetite.
Our investment advice is tailored to your needs. We consider your retirement timeline, risk tolerance, and personal objectives. With our guidance, you’ll be positioned to make the most of the best investment products available.
For more details on pensions, feel free to contact one of our team members.
The information provided on the pages, blogs and articles contained within this website are solely for information purposes only and do not constitute financial advice. Professional advice should always be sought from a financial adviser.
