Isle of Man: Isle Of Man Pension Schemes

Last Updated: 9 April 2008

Article by Gary Boal*, Boal & Co.

Imagine a SIPP:

  • Which can invest directly in buy-to-let residential property (at home and abroad)
  • Whose benefits can be taken through flexible drawdown, with no annuity requirement – ever
  • Which pays 30% of the fund at retirement as a tax-free lump sum
  • Which can accept pension transfers from the UK (including protected rights)
  • With potential tax savings in retirement, compared with the UK.
  • With only a 7.5% tax on death (after which funds are paid out to nominated beneficiaries or the member's estate)
  • Based in a AAA-rated international financial centre, operating on a bona fide basis, in a properly regulated environment.

Imagine no more. Welcome to the wonderful world of pensions - Isle of Man style.

Available to All

Isle of Man pension schemes have for many years provided a flexible tax-efficient shelter for well-heeled local residents, including those taking up residency from the UK. Trust-based SSASs and SIPPs have no annuity requirement, and so enable a flexible approach to pensions in retirement, including the possibility of preserving funds for the next generation.

The bad news prior to UK A-day was that, to avail of the flexibility, an individual had to be IOM-resident. The good news is that all of that has now changed, and Isle of Man SIPPs and personal pensions are now available to all. Isle of Man schemes offer particular financial planning opportunities for UK expatriates and other UK non-resident individuals with pensions left behind in the UK, the subject of which is the focus of this article.

At Retirement

Benefits from SIPPs and other IOM personal pensions are taken at retirement in the normal way, ie a combination of taxable pension and tax-free lump sum. The taxation regime from April 2008 enables 30% of the fund to be paid as a lump sum (compared to 25% in the UK). The residue has to provide a pension, which can be at any time of choosing between taking of the lump sum and age 75.

The same IOM tax legislation [the Income Tax (Pensions) Bill] which increases the tax-free lump sum from 25% to 30% also removes the annuity requirement from personal pensions, so now any kind of personal pension (not just SIPPs) whose rules permit it, can provide pension through drawdown. Furthermore, unlike in the UK, drawdown operates seamlessly before and after age 75; there are no separate rules for pre and post age 75. Added to which, where drawdown is operated on an actuarially certified basis (like SIPPs), there is considerable flexibility as to the rate of drawdown.

Pensions, when paid, are taxed at low Isle of Man rates (ie 18%), which offers potential savings compared to UK taxation. The UK/IOM double taxation treaty operates for individuals who return to the UK in retirement. When the scheme winds up on death, the amount (net of IoM tax @ 7.5%) can be paid to the member's nominated beneficiaries or personal representatives.

Contributions can be made to IOM schemes at a high rate – up to £300,000 pa, if earnings permit. For non-residents, local tax relief in their own country on contributions made to an overseas scheme will generally not be available, though, so the main opportunity for use of IOM schemes is in relation to transfers of mature or accumulated pension funds left behind in the UK.

Investment Flexibility

IOM SIPPs can avail of a very wide range of permitted investments. The regime is principles-based, with four common-sense tests:

  1. Sole purpose - ie the member derives no non-relevant benefits
  2. Assets are commercial and made on an "arms length" basis
  3. Assets can be readily valued on an independent basis
  4. The investments must be consistent with a duty of care on the part of the administrator.

Notably, the principles are consistent with investment in buy-to-let residential property, for example.

Ordinary personal pensions (ie below SIPPs) can invest in assets such as private portfolio bonds, other single-premium insurance bonds, and bank deposits. At Boal & Co, our own range of schemes covers all of these options, with considerable investment opportunities therefore for the IFA/adviser.

Transfers - QROPS

Prior to UK A-day, pension transfers from the UK to the Isle of Man (along with other overseas countries) operated under a long-standing reciprocal agreement, which relied upon the person's tax residence having moved from UK to IOM. The effect of A-day was to tear up all such reciprocal agreements and replace them with the current QROPS regime. Any pension transfer can be made from a UK scheme to an overseas scheme at any time, provided only that the latter is registered with HMRC as a Qualifying Recognised Overseas Pension Scheme (QROPS). At Boal & Co www.boal.co.uk we have many such IOM schemes which now hold QROPS status.

QROPS conditions impose reporting and other obligations on the overseas administrator to HMRC. However these and some other conditions (eg Member Payment Charges) fall away after 5 years of UK non-residence: once the overseas transfer has happened, if the member has been UK non-resident for 5 years [and is non-resident when the pension is paid] there are no HMRC reporting requirements.

IOM personal pensions can obtain contracted-out approval, and at Boal & Co we now have a choice of master trust-based personal pension arrangements to which UK protected rights can be transferred. As with the main pension fund, protected rights can also operate on a drawdown basis in retirement.

All in all, the UK transfer arrangements are therefore open and liberal, provided the IOM scheme is bona fide, registers as a QROPS with HMRC, and honours the specified reporting requirements to HMRC.

Although the focus of this article is UK expatriates and other non-residents, a few words of caution are appropriate in relation to UK-residents. Whilst there are no barriers in the way of UK->IOM QROPS transfers for UK residents, the applicable UK taxation/benefits regime continues to catch their overseas pension scheme (unless they achieve a 5-year non-residence break). So UK rules in respect of member payments and UK tax on events such as increased pensions, or re-allocation on death, continue to apply to the overseas scheme as if it was a UK scheme. For this reason, whilst there is considerable scope for UK non-residents, the opportunities for UK-residents are much more limited.

A Fully Regulated Environment

Isle of Man pension schemes operate in a well regulated environment introduced by the IOM Retirement Benefits Schemes Act 2000 and subordinate Regulations. Scheme administrators and trustees must be authorised by the Insurance and Pensions Authority (IPA) www.gov.im/ipa, the same regulator as for the Island's highly successful offshore life assurance sector.

The Isle of Man Treasury (www.gov.im) has high hopes that its offshore pensions sector will emulate the success of the offshore life sector which, after 25 years of expansion, now boasts funds under management of more than £35bn. Given the opportunities that the Island's pension framework provides – most particularly for moving non-residents' UK pensions to a more flexible, tax-efficient environment - and given the professional expertise and range of schemes now available, IOM Pensions plc is now very much open for transfer business.

*Gary Boal BSc FFA FSAI, is managing director of Boal & Co, consulting actuaries and pension scheme providers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.