I’m retiring soon, what should I do with my pension fund?

Through your working life you may have built up a number of different pensions. Now that you are looking to stop work, you need to turn these into an income.

How do I do this?

If you have a pension based on your final salary, known as a defined benefit pension then the income paid to you will be paid by the pension scheme directly.

For other pension schemes, such as personal pensions or "Money Purchase" pensions, income is taken directly from your pension fund, with the balance of the fund remaining invested. This is known as Pension Drawdown and in the Isle of Man comes under the Withdrawal of Funds Rules. The following relates to Money Purchase schemes only.

What benefits can I take?

Currently you can take up to 30% of your fund as a lump sum from an IOM pension scheme free of tax, with the balance taken as income. While the amount you take can be decided by yourself (within limits) the income is not guaranteed and will depend on how long you expect to live and the size of your fund. A calculation is done by the pension provider to establish what would be a sustainable income without diminishing the fund to zero before death, which is reviewed regularly.

For funds of £50,000 and below (increasing to £100,000 from April) the whole fund can be taken as a lump sum, however any amount in excess of 30% is subject to income tax at your marginal rate.

What were the changes made in the budget?

A new pensions regime was brought in, with the ability to take the whole fund as a lump sum. In this new regime 40% will be tax free and the remainder can either be taken at the same time or in amounts and at times to suit you - subject to your marginal rate of tax.

What happens when I die?

Under current rules, any funds left on your death in retirement are subject to 7.5% tax. The new pensions regime has zero tax on death.

Should I transfer my existing pensions to the new plan?

This depends on your own circumstances. There is a 10% tax charge to move to the new plan which will be deducted at source from your existing pension. In addition, you must take at least 40% of the fund as a lump sum at retirement - there is no option to use the whole fund to provide an income for life.

It sounds complicated.

It can be, and you need to look at the options available very carefully, and ideally take professional advice.

Boal & Co will be offering the new pension scheme and will also continue to offer a scheme under the current regime.

Which you choose will depend on your own circumstances and requirements.