For Isle of Man residents there are a number of steps you can be taking to enhance your retirement savings; before, during and after you retire.
Here are some steps you should consider before and at retirement.
1. Start saving as early as you can
It’s never too late to start saving into a pension, but the earlier you start the more chance you have to build up a nice pension pot. The effects of compounding can be quite significant.
For example, an individual saving £250 per month for 40 years, and assuming it grew at an average rate of 5% per annum, could have a pension pot valued at around £380,000.
If the same individual paid in the same total amount over a shorter period, let’s say £500 per month for 20 years, then their pension pot could be valued at around £205,000.
Remember; saving into an approved Isle of Man pension attracts tax relief at up to 20%. So, for every £100 you save you could receive up to £20 tax relief!
2. Ensure your pension is well invested and regularly reviewed.
The more time you have until your desired retirement age, the more likely that you might be comfortable with investment risk.
However, it’s not all about chasing the high returns though, as this could involve a level of risk that you will feel uncomfortable with, particularly during times when the financial markets have fallen, such as recently. That said, taking no risk at all, for example investing in a cash fund, can lose you money in real terms when taking into account charges and inflation.
3. Don’t pass up free money.
The Isle of Man does not have the auto-enrolment scheme like the UK; this means that employers do not have to offer a pension scheme to staff at the moment. However, if you are lucky enough to have an employer who offers a pension scheme, they may make company contributions. The company contributions may be dependent on what you also pay in yourself, so it’s a good idea to look into whether you are eligible to join your company’s scheme and pay what you can afford to maximise your company’s contribution.
For example, if your employer matched your contributions up to 5% of your salary, that could mean a total of 10% of your salary being paid into your pension (5% from you and 5% from your company)!
4. Top up your State Pension.
If you have worked or lived in the UK then you may have an entitlement to a UK State Pension, as well as any State Pension you have built up whilst working in the Isle of Man.
Providing you have a minimum of 3 years National Insurance contributions in the UK, you can potentially increase this to the minimum requirement of 10 years, or possibly the maximum of 35 years and build up an entitlement to a full UK State Pension.
The current (2020-2021) full single tier Isle of Man State Pension is £191.35 per week (£9,950 a year). The full single tier UK State Pension is £175.20 per week (£9,110 a year).
If you have not worked in the UK, but were born there, you may be able to take advantage of this facility still, providing you were in the UK for 3 years.
5. Do not get taxed on your tax-free lump sum when you access your pension.
A pension typically allows you to take a lump sum payment, tax-free, from when you reach the age you can access your pension.
If you happen to have a UK personal pension (not an occupational pension) then accessing the tax-free lump sum (typically 25% in the UK) as an Isle of Man tax resident (from age 55) will mean that you will end up having an Isle of Man income tax liability on all the benefits you access, including the ‘tax-free’ lump sum.
Transferring your UK personal pension to an Isle of Man pension may ensure that any tax-free lump sum is treated as such when accessed. However, depending on the size of the pension, it may be more financially beneficial to leave the pension in the UK as the costs involved in transferring may outweigh the tax saving.
Pensions do not have to be complicated. At Chase Wealth we like to explain things clearly and try to use jargon-free language.
We work with you to try and ensure your retirement plan is achieved and continues to work for you before and during your retirement.
Please feel free to get in touch via LinkedIn, email or by phone if you would like to see how we can work with you to achieve your goals.
Paul Wheeler DipPFS
T. 01624 640350 E. paulw@chasewealth.im
References to growth rates are for indicative purposes only. Inflation can reduce the buying power of your money over time and affect the real return. A maximum annual pension contribution of £50,000 (or relevant earnings, if lower) is in place for tax-relieved contributions to be made to approved Isle of Man pensions. Legislation must be adhered to when considering pension transfers from the UK. Please note that past performance should not be used as a guide for future returns and there is a risk with any investment you may end up with less than originally invested.
Chase Financial Services Limited trading as Chase Wealth Solutions is regulated by the Isle of Man Financial Services Authority