The introduction of pension freedoms in the UK in April 2015 was a fundamental change in approach to retirement savings. The issue was first debated in Tynwald (the Island's Parliament) in July 2015, with a motion being approved that proposals to be brought forward "to allow Manx residents pension freedoms equal to or better than those currently available in the UK". Whilst the 2016 Budget did implement some increases to triviality and fund remnant limits with a view to providing greater flexibility, these were by no means comparable to the freedoms introduced in the UK. In July 2017 the Government issued a consultation on a new alternative type of pension scheme to provide greater freedoms and the Isle of Man Budget in 2018 saw the introduction of the concept of pension freedoms to the Island's pension legislation.
It was also announced in the 2018 Budget that the triviality and fund remnant limits will be further increased.
Details of the new scheme
Significant features of the new scheme, introduced from 6 April 2018, are as follows:
- Members of the new scheme will have full access to their pension fund from age 55.
- A lump sum tax-free payment can be paid of up to 40% of the value of the pension fund at the time the payment is made. This is more generous than the 30% applicable to current schemes. The remainder can be drawn down at any time and will be taxed as income in accordance with the member's annual tax assessment.
- For a 10% fee, funds can be transferred into the new scheme from another approved Isle of Man scheme (other than a statutory scheme approved by Tynwald or an occupational defined benefit scheme). This fee is not classed as a charge to income tax.
- Unlike current schemes there will be no maximum retirement age.
- There will also be no charge to income tax paid out on the death of a member, provided that the funds are paid out within 2 years.
The maximum annual contribution for all schemes has been reduced from £300,000 per annum to £50,000 per annum. This includes contributions from both the scheme member and the employer (if applicable) and extends to contributions made in respect of the same person to other approved pension schemes of which they are a member. There is an exemption for transfers into a new pension freedom scheme.
Increases to trivality and fund remnant limits
To assist scheme members who wish to access funds in an existing approved scheme without transferring funds to a new scheme, the triviality limit and fund remnant limit have been increased from 6 April 2018 to £100,000 (previously £50,000), meaning a fund of approximately £142,800 could be paid in this way.
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