In February 2018, the then Treasury Minister, the Hon. A L Cannan, MHK, introduced legislation enabling enhanced pension freedoms on the Isle of Man. Effective from April 6, 2018, these changes brought flexibility in accessing pension benefits and provided more substantial tax relief options for individuals saving for retirement.
Fast forward to 2025, the Isle of Man Pension Freedom Scheme (PFS), under Section 61 Plan legislation, remains a game-changer, offering savers unmatched flexibility and tax efficiency.
Key Features of the Old (1989) Pension Schemes
Prior to the implementation of the PFS, the 1989 pension schemes had the following characteristics:
- Minimum Age to Access Benefits: 50*
- Tax-Free Lump Sum: 30% of the pension pot available at retirement.
- Remaining Balance: Required to be converted into income via an annuity or a Self-Invested Personal Pension (SIPP)**.
- Death Tax: A 7.5% tax was applied to any remaining pension pot upon death should you have accessed any pension benefits.
*Certain exceptions allowed early access to benefits due to ill health or specific occupational roles.
**In limited cases, the entire pension pot could be taken as a lump sum, subject to specific conditions.
Key Features of the New (1961) Pension Freedom Scheme
The Pension Freedom Scheme (PFS) under the updated Section 61 Plan includes significant enhancements, making it one of the most attractive retirement savings solutions for Isle of Man residents in 2025:
- Minimum Age to Access Benefits: 55*.
- Tax-Free Lump Sum: Increased to 40% of the pension pot, providing greater financial flexibility.
- Unlimited Drawdown: The remaining funds can be accessed freely, offering control over how and when retirement income is taken via a Self Invested Personal Pension (SIPP) or if wanted, an annuity.
- No Death Tax: Any remaining pension pot is passed to beneficiaries without a tax penalty.
*As with the old schemes, early access due to ill health or occupational factors is still possible.
Transferring to the Pension Freedom Scheme
It is possible to transfer from an older 1989 scheme to the new Section 61 Plan; however, the Isle of Man Treasury imposes a 10% transfer fee. Most individuals choose to cease contributions to their old schemes, allowing them to remain invested, while directing new contributions to the PFS to capitalise on its enhanced benefits. For some individuals it may make sense to make this transfer depending on their circumstances. You should always consult with a financial adviser in doing so.
Transfers from UK pension schemes and defined benefit plans are not eligible for PFS inclusion, as Isle of Man PFS cannot directly accept these transfers.
Why Contribute to Your Pension?
The 2024 updates to the Section 61 Plan reinforce the importance of pensions as a retirement-saving vehicle. Here are three primary reasons to contribute:
- Tax Relief: Contributions to your pension are eligible for tax relief at a rate of up to 22%. The annual limit for tax-relieved contributions is either your annual relevant earnings or £50,000, whichever is lower.
- Flexibility: The plan accommodates regular contributions that can be adjusted or paused as needed, alongside one-off payments. This adaptability ensures it fits changing financial circumstances.
- Tax-Efficient Growth: Pension contributions are invested in funds, and all growth within the pension pot remains tax-efficient, outpacing most other investment products available to Isle of Man residents.
Where is My Pension Invested?
The funds in your pension are actively invested in high-quality, diverse portfolios managed by top-tier Isle of Man providers. These investments range across various risk profiles and objectives, ensuring alignment with your retirement goals.
At Osborne Financial, we prioritise customised advice. Our experienced advisers assess your goals, risk tolerance, and retirement timeline to recommend tailored investment strategies within the best pension products available.
Source Information
You can read more about the Isle of Man Pension Freedom Scheme on the Isle of Man Government’s website by using the following links:
Contact us for personalised guidance on your pension options, including transferring to or maximising the benefits of the Section 61 Plan, reach out to our expert team. We ensure your investment decisions are based on your unique circumstances, offering unparalleled expertise and commitment.
The information provided here is for informational purposes only and does not constitute financial advice. Professional advice should always be sought from a licensed financial adviser.
The enhanced flexibility and tax advantages under the Isle of Man Pension Freedom Scheme make it a vital tool for securing a comfortable retirement. Take control of your future today by exploring the benefits of the Section 61 Plan.
