Pension Freedom Schemes – are they really that good?

We are delighted to feature this guest article from Fedelta Pensions Managers’ Andrew Paul and Louise Haynes

An Isle of Man Pension Revolution

As part of the 2018 Budget, the Isle of Man introduced the biggest change to pensions on the Island since the introduction of personal pensions in 1989, by announcing the creation of a new type of pension called a Pension Freedom Scheme (PFS).  These schemes were designed to run alongside the existing types of pensions that were (and remain) available.  Under a PFS members have access to their full pension savings once they reach the age of 55, something that was introduced in the United Kingdom in 2015.

The UK approach was to allow flexible access to existing schemes; whereas in the IOM, full access to existing pension benefits can normally only be achieved by arranging a transfer out of the current scheme into a PFS.  Such transfers are subject to a transfer fee of 10%, payable to the IOM Treasury.  Whilst this fee may act as a deterrent in some cases, members do at least now have the option to fully access their benefit if they really need to.  Due to our lower rates of tax, the overall cost of accessing benefits in the IOM is still normally less than a UK resident would pay to access the same level of benefits, even when the IOM Government transfer fee is factored in.

Those with smaller pension funds (£142,857 or less) can have full access and still avoid the 10% Government fee by making use of the Pension Remnant rules that were introduced at the same time as the PFS.  This has proved a more popular option than the transfer of bigger funds into a PFS as the annual pensions that can be provided by these smaller funds are minimal.

For anyone seeking to commence funding a pension scheme now, a PFS is very likely to be the best option.  A PFS has a more generous tax free lump sum allowance on retirement (40% compared to 30% under an older style arrangement).  The amount that can be taken in subsequent withdrawals is not restricted by prescribed drawdown calculations so you can take as much or as little as you like (subject to taxation at marginal rates).  Under a PFS there is no tax payable on death (7.5% is payable under older style schemes if benefits have commenced before death).  There is no upper age limit when benefits must commence from a PFS, unlike older style schemes that have an upper age limit of age 75.

The 2018 Budget wasn’t all good news for pensions, however, as it also reduced the amount that each individual can contribute to a pension scheme.  The maximum annual amount of contributions to any type of pension scheme that a member and/or their employer can contribute in any tax year is a combined £50,000; greatly reduced from a previously very generous £300,000.

In view of the reduced contribution limit most PFS contributions are made into lower cost master trust arrangements but bespoke schemes are available for those who require greater flexibility and control.  Fedelta Pensions Limited are able to offer both options along with older style arrangements that are often still more suitable for those with existing benefits.

If you wish to join the Revolution (or if you would just like a free, no obligation meeting to review your pension options), please contact either Louise or Andrew by e-mail at lhaynes@fedelta.com or apaul@fedelta.com. Alternatively you can phone 01624 622331 or visit their website fedelta.com.

 

Disclaimer – The information provided is believed to be accurate at the time of writing (20/09/2019) however there may be other factors not mentioned that are relevant to your circumstances. Always seek professional advice.