Company pension schemes are a vital part of an employee remuneration package, and up until the Manx Budget of 2018, these were structured as either standalone occupational pension schemes or group personal pension schemes (the choice mainly dependent on whether the employer wished to be a Trustee).
With the introduction of the PFS (Pension Freedom Scheme) regime last year, which is now being finalised through Tynwald, local employers now have a further decision to makeâ?¦.
Simply put, the new PFS is a better choice of scheme than what has been available to date. The only benefit of the older type is the ability to take benefits earlier, at 50 instead of 55 (PFS minimum retirement age)
The main changes are, as the name suggests, around flexibility (and tax efficiency). Under the older pensions, at retirement a tax free lump sum of up to 30% of the fund is available with the balance of the fund to be used to provide an income for life either by purchasing an annuity or taking a sustainable amount from the fund each year. Indeed, some pension schemes only have an annuity option.
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The new PFS has an increased amount of tax free cash available (40%) and income can be taken in the same way as the older schemes, but with the additional option to take flexible income at whatever level required (until the fund runs out), including the ability to take the whole fund as a lump sum. There is also no tax charge on death after retirement, as opposed to 7.5% on the older schemes.
In summary, given the PFS offers enhanced flexibility and tax efficiency in retirement, it is clear that any future contributions made by employers into company pension schemes on behalf of staff would be best suited going into a PFS, particularly as a tax free switch back to the older regime is an option, should this be required in the future.
For existing funds, a transfer to a PFS from an existing IOM approved scheme is possible however there is an IOM tax office transfer charge of 10% on the value of the transferred fund, making this prohibitive for most people.
However, there is no transfer charge to switch from PFS, so if it transpires that this would be more suitable (e.g. if requiring benefits from age 50 instead of 55) then a switch back is viable.