Back in February 2018, the Treasury Minister, the Hon. A L Cannan, MHK, announced the introduction of some new legislation surrounding personal pensions.
This legislation became effective from the 6th of April 2018 on the Isle of Man to bring about pension freedoms and enable new products offering further flexibility regarding taking the benefits alongside more significant tax relief.
Like most pension schemes, it is simply a product that allows you to add regular or single contributions to save money for retirement. We discuss some of the differences between new and old, some of the questions you might have, and where we can add value.
What were the key features of the old basis?
Under the older pension rulings (1989 schemes) the key features are as follows:
- Minimum age for accessing benefits of 50*
- 30% Tax free lump sum available at retirement
- The remaining sum used to provide an income via either an annuity or a SIPP**
- 5% tax charge on death
**In certain circumstances, it may be possible to receive the full benefits as a lump sum; however, this is dependant on the size and any other plans you may have. For more information on this, please contact your adviser.
What are the key features of the new (PFS) basis?
Under the new pension rulings (1961 schemes) the key features are as follows:
- Minimum age for accessing benefits of 55*
- 40% Tax free lump sum available at retirement
- Unlimited drawdown on the remaining sum
- No tax upon death
*If you cannot carry on working due to ill health, or if you have a particular type of occupation, you may be able to trigger benefits before these ages. For more information on this, please contact your adviser.
Can I transfer my old pension plan into a PFS?
While it is possible to transfer your older pension scheme into a pension freedom scheme, the Isle of Man Treasury would charge you 10% for the pleasure. It will be likely that most people will cease contributions into their old plans, leaving the amount invested and direct any further contributions into a new PFS to take advantage of the new rulings. In some situations, it may be advantageous to make such a transfer, and again, this will come down to the individual circumstances.
This does not apply to UK pension schemes nor defined benefit schemes as an Isle of Man PFS cannot accept these transfers directly.
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?
The monies within your pension won’t just sit there doing nothing – or at least they shouldn’t be. We work with the highest quality pension providers available with the Isle of Man market, and within those pension plans, there is a wide variety of investment funds from which to choose from and ultimately where your money will be invested.
At Osborne Financial, we take great care and pride in our investment advice. We take a really good look at your goals, timeline to retirement, appetite to risk and put you in front of the best quality pension products/investment funds on the market. Absolutely nothing we do is off the shelf; our investment advice is completely tailored to you through one of our experienced advisers.
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.