Pension Update March 2018
Pension freedoms announced
There were several concerns leading up to the Manx Budget about the [much anticipated] proposed pension changes. We knew changes were afoot but had little idea of the exact structure. Some may now be pleasantly surprised.
Mr. Cannan has put forward new legislation which may please most pension savers. The new legislation, called the Pension Freedom Scheme (PFS), operates in a similar manner to current schemes, with some significant changes.
The fund grows free of taxation, but the age has increased from 50, for current schemes, to 55 to access the pension. Tax free cash is still available, but at a gracious 40% rather than the current 30%. The remainder can then be drawn down as and when required; added to income for that year to calculate any tax payable.
You can leave the fund untouched, unlike current schemes where you must take benefits from age 75. Some welcome news for your beneficiaries will be that on death there is no taxation on the fund providing it is paid out within two years.
Sad news for high pension savers; the current maximum annual contribution limit has been reduced for all schemes from £300,000 per annum to £50,000 per annum where tax relief will be given; with a whopping 40% tax charge on excess contributions.
Only transfers from Manx schemes will be permissible, however Final Salary scheme transfers are not permitted.
A fee (not a tax) of 10% will have to be paid on the transfer value, payable by the original pension provider. The majority of pensions were set up with insurance companies, so it depends upon their willingness to co-operate. We will have to wait and see.
Other welcome news is that the level for immediate encashment of a single, or a number of pensions, under Trivial Commutation has been increased to £100,000 (previously £50,000) and Remnants, where you can cash a number of pensions in tranches, to £142,000. This means that most pension holders will not need to transfer to the new PFS to access their pension in full, providing they are prepared to pay tax on the remaining 70% (after the current 30% tax free cash).
There are now more options and more choice, albeit perhaps there is greater complexity. It is now even more important that you seek advice from a pensions expert before you cash in your pensions.