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IoM Proposes New Pensions Offering

by Jason Gorringe, Lowtax.net, London
19 July, 2017

The Isle of Man is consulting on the introduction of a new tax-efficient pension scheme that would provide members with greater pension freedoms.

The proposed new scheme has a minimum retirement age of 55 with no maximum retirement age. Tax relief on pension contributions will be given at the rate of 10 percent up to an annual contribution limit of GBP5,000 (USD6,522). Pension growth will be tax-free.

On reaching scheme retirement age, full access to the pension will be allowed, including the ability to take the whole of the pension pot in one withdrawal, or to make smaller withdrawals as and when required by the member.

Forty percent of a pension can be taken as a tax-free lump sum, with the remainder of funds withdrawn as a lump sum taxed at 10 percent. There will be no tax on the death of a pension member.

The proposed new pension scheme will require the island's Assessor of Income Tax to formally approve contributions paid into the scheme as qualifying for tax relief.

The proposed scheme can be either a personal pension scheme or an occupational pension scheme. It cannot, however, be a defined benefits pension scheme and the new scheme will not be permitted to accept transfers in from a defined benefits scheme.

Given the proposed reduction in the rate of income tax the new pension will be subject to, and the higher tax-free lump sum proposed, a fee will be charged for the transfer of a pension from an existing scheme in order to protect revenue, particularly as contributions to the scheme being transferred may have already received tax relief at up to 20 percent, the Government said.

The level of fee proposed is 15 percent of the sum to be transferred, and the amount of fee charged will not be taken into account for the purposes of the income tax cap. The fee will be deducted before the transfer, by the administrator of the existing pension scheme, and paid to the Assessor.

Interested persons are invited to submit their comments on the new pension scheme proposals by September 15, 2017.

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