On Tuesday 18th February, the Isle of Man Treasury Minister, Alf Cannan, delivered his Manx Budget for the forthcoming tax year 2020/21 which he entitled “A Budget of Focus”.
The Manx pension landscape was one of the hot topics in the 2018/19 budget following the introduction of the Pension Freedom Scheme (PFS), effective 6th April 2018, but this year’s budget was relatively quiet on the pensions’ front, and in fact completely silent in regards to any changes or announcements in relation to the private pensions sector.
Some headlines from the 2020/21 budget, effective 6th April 2020, are summarised below:
- Increase in personal income tax allowance by a further £250 (i.e. new allowance of £14,250 for single person and £28,500 for jointly assessed couple)
Increase of Tax cap limit (as anticipated) to £200k (or £400k for jointly assessed couple), but a new option to make a tax cap election for 10 years with the current 5 year election also remaining available
State Related Benefits
- Increase to the State Pension of 3.3% and 3.6% to the Manx State Pension
- 10% increase to earnings threshold for National Insurance (NI) contributions
Public Sector Pension Scheme
- Forecast for 2019/20 is income of almost £68.2m and expenditure close to £106.3m (dependent upon numbers of retirees in year)
- Public Service Pension Reserve now forecast to be depleted part way through 2022-23; estimated level of extra revenue expenditure required when fund runs out is circa £50m for financial year 2023-24 (calculations by scheme actuary, Hymans Robertson).
Have you considered a Pension Freedom Scheme (PFS) yet?
As a reminder, the key features of the PFS include:
- ✓ Tax relief at highest marginal rate on contribution amounts up to 100% of IOM Relevant Earnings (subject to max cap equal to annual allowance of £50,000)
- ✓ 40% of accumulated fund value available tax-free at retirement (any time after age 55)
- ✓ PFS fund is fully flexible in terms of frequency and magnitude of benefit withdrawal
- ✓ No requirement to ever take benefits during lifetime – invested fund can roll up tax-free and be passed on to nominated beneficiaries on death
- ✓ No IOM tax due on distribution of fund out of PFS to nominees following death
For your “To Do list”
- Check your current pension scheme and find out if it is a PFS arrangement;
- If not, consider starting a PFS to run alongside your current scheme;
- If you have the means and you or an employer on your behalf have not made pension savings into your pension scheme of up to £50k already in the current tax year you still have time to make extra contributions and you will receive full tax relief
Pensions can be confusing but we are all hoping for a long and healthy retirement. Taking action on pension saving early is the best approach but it is never too late to maximise your own personal situation. At Boal and Co, we are a friendly bunch and never happier than when we are talking about pensions so feel free to come and have a chat with us.
If you work with a financial advisor, make an appointment to review your pension savings today!