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reform, a number of considerations
arise. The absence of inheritance
taxes and higher marginal tax rates
“Robespierre” Osborne and the
Pension Revolution:
its implications for
Isle of Man Pensions
mean the IOM Government will
either have to (a) be even more
‘relaxed’ about the prospect of IOM
residents ending up on the State
pension, or (b) satisfied that the
number of IOM residents who do end
up on welfare due to mismanagement
of their pensions will not effect a
material strain on future Treasury
resources.
In
By Ben Hughes,
Divisional Director,
Insurance and Pensions Department,
Cains
this
regard,
the
IOM
Government is now engaged in a
review of its State pension provision.
This encompasses the “Big Debate”
(launched 15 September) and the
commissioning of more granular
analysis by consultancy firm Ci65 as
to the sustainability of the IOM’s
welfare and social security systems.
Additionally, other aspects of the IOM
tax regime will need to be weaved
into Treasury’s final position on the
UK pension reforms, not least (i) the
cap on income tax charges (£120,000
p.a.),
I
R
26
R
’m reading Hilary Mantel’s “A
are
our hard earned cash as we like.
with
him
(annuity
(ii)
the
generous
annual
allowance of up to £300,000 p.a. of tax
rates
free pension contributions, and (iii)
Place of Greater Safety”, set in
Obviously, the Consultation isn’t
repeatedly get a bad press) and he’s
French Revolutionary Paris. It
quite in these terms (I’m channeling
not afraid to spill blood in the process
provide annual pension drawdown
‘pension for life’ is a genuinely
the lack of a cap on pension benefits
is classic Mantel, documenting a
my
(one client’s shares fell by over 50 per
capped at a percentage of the annuity
significant
(as per the UK’s lifetime allowance).
period that spans radical religious,
revolutionary sentiments are there.
cent
rates published by the Government
principles of the last 100 years are
Finally, there are wider IOM plc
social
upheaval,
To quote Osborne: “This Government
announcement).
Actuary’s Department (the GAD rate).
being cast aside in favour of the rights
considerations as a more restrictive
populated by engaging historical
believes in the principle of freedom...
So what is the big change and
Up to March 2013, the rate was 100%
of the individual. It all feels very
drawdown regime may make us a less
figures.
Individuals who have worked hard
what are the implications for the
and between March 2013 and March
“Declaration of the Rights of Man and
attractive
HM
and saved responsibly throughout
IOM? In short, it is about the way
2014, the rate was 120 per cent of the
the Citizen” (but, as I say, they’re
employees and businesses who may
Treasury’s March 2014 Consultation,
their adult life should be trusted to
income is delivered from a defined
GAD rate. With regard to flexible
calling it “flexi-access drawdown”).
be weighing up the IOM vis-a-vis
“Freedom and choice in pensions”
make their own decisions with their
contribution pension plan (a DC
drawdown,
Budget
So, will you in the IOM benefit
and would like to say it is similarly
pension savings and the reforms I
plan). DC Plans were always obliged
required an individual to have a
from our neighbour’s Revolution?
gripping, but not even a lawyer could
announced at Budget will deliver just
to purchase an annuity that provides
guaranteed income of £20,000 per
Well that is all very unclear. For a
Therefore, it will be interesting to
say that with a straight face.
that...
is
an ‘income for life’. This requirement
annum.
start, IOM Treasury are a cautious
see which path the IOM Government
I’ve
and
political
also
been
reading
inner
the
Mantel)
annuities
but
market
the
following
the
Budget
the
pre-2014
change.
The
guiding
jurisdiction
for
another more permissive pensions
regime.
However, the reforms in the latter
currently not working in the best
has long been hardwired into tax
Therefore, notwithstanding the
bunch and this is a radical step. The
takes
interests of all consumers... I want as
legislation and dates back to the UK
development of drawdown post age
freedom to drawdown as much of
pension reforms. My guess is that, in
(dare I say historic) and, if adopted in
many people as possible to be able to
Finance
77, the UK government still retained
your pension as you like could well
the short term, the Island will simply
the Isle of Man (IOM), have the
access their pension flexibly... these
response to falling annuity rates,
significant
invite the profligacy that an annuity is
adopt some of the UK’s transitional
potential to radically change the way
major reforms amount to the biggest
‘pension drawdown’ was introduced
individuals being a burden on the
uniquely disposed to avoid.
measures
you think about your pension savings
changes to savings for a generation...
in the UK in 1995 as an alternative
State. But this changed with the 2014
Furthermore, this is a potentially
withdrawals of up to 150 per cent).
in the longer term.
this is the most fundamental change
way of drawing pension income, but
Budget. First, transitional measures
bigger issue for the IOM than the UK
However, the liberalisation of the
to how people can access their
the rate of drawdown was limited and
were introduced to allow drawdown
whose higher marginal tax rates will
UK’s
pension in nearly a century.”
could not be sustained beyond age 75
to rise from 120 per cent to 150 per
act as a disincentive for those wishing
gathering pace following the 29
(and latterly age 77), at which point
cent of the GAD rate from 27 March
to drawdown all of their pension
September announcement that UK
an annuity had to be purchased.
2014.
savings over a short period of time.
inheritance tax on pensions is being
In particular, there is a notable
zealous tone to both the initial
1921.
However,
in
safeguards
to
avoid
with
regard
to
(including
pension
regime
Osborne’s
GAD
rate
(which
is
the
This stuff is worthy of Robespierre
subsequent response published in
in full flow at the Jacobin Club. Just
July 2014. In effect, the proposed
as the French Revolution disrupted
By 6 April 2011, drawdown had
pension
long established and self-interested
developed so that a DC plan need not
income requirement dropped from
Steven
freedom of the individual to be master
conventions
of
purchase an annuity at age 77. It
£20,000 to £12,000 per annum. Then,
comment
of their destiny.
feudalism and a shift in power from
could, instead, offer two options: a
from April 2015, individuals with DC
purchasing Lamborghinis may be
the
Church to State), Osborne sees
“capped drawdown” arrangement
plan savings will be able to draw on
more pertinent to the IOM than to the
What is certain, is that there will
individual from the tyranny of the
himself as standing up for the
which limits the annual income, or a
their funds “whenever and however
UK. Interestingly, Webb’s justification
need to be more soul searching
annuity that has long reigned over us.
common
“flexible drawdown” arrangement
they wish after the age of 55”
for that comment was that revisions to
before we follow Osborne over the
They urge us to tear down the
institutional power of insurance
which
of
(paragraph 3.13, of the Consultation).
the State Pension were such that he
barricades into the brave new world
oppressive edifices of a long-standing
providers whose vested interests are
drawdown but requires a minimum
This new regime will have the snappy
felt “relaxed about how people use
of... “le flexi-access”. In this regard,
and unreformed tax regime that
ingrained in a tax system that favours
level of annual income.
title of “flexi-access drawdown”.
their own money”.
the timing of the IOM’s review of its
Ben Hughes
corrals us into securing an income for
a wholly annuitised retirement. And,
Taking these in turn, capped
Obviously, the fact that a UK DC
If the IOM Government is going to
State pension provision could not be
Direct line: +44 1624 638374
life and inhibits our freedom to spend
like Robespierre, he knows the mob
drawdown allows a DC plan to
plan is no longer obliged to provide a
follow the UK’s lead on pension
better.
E-mail: [email protected]
Consultation
They
document
reforms
seek
to
and
champion
unshackle
the
(the
man
abolition
against
the
allows
a
higher
rate
Additionally,
the
minimum
Therefore, UK Pensioner Minister
Webb’s
about
axed)
will
pose
some
difficult
flippant
questions for the IOM as to what
pensioners
shape its future pension regime
rather
should take.
Contacts:
ISLE OF MAN
PORTFOLIO
ISLE OF MAN
ISSUE 149
R
27
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skilled
documents are genuinely significant
Act
So what is the big
change and what are
the implications for
the Isle of Man? In
short, it is about the
way income is
delivered from a
defined contribution
pension plan . . .
ISSUE 149
PORTFOLIO