The Isle of Man Budget, unveiled by Treasury Minister Eddie Teare yesterday, featured several important measures which will impact on pensions and taxation.

In its initial response to the 2016 Budget, Island-based pensions provider Boal & Co highlighted some of the key points, including changes to the Triviality provisions, amendments to the state pension and the retention of the 10% personal income tax band.

Chief Executive Mark Kiernan said: ‘Obviously, the Budget has only just been announced and we will examine in detail the full proposals from Mr Teare, but there are some measures which have immediately caught our attention.

‘Regarding pensions, there has been an increase in the Triviality limits for Isle of Man approved pension schemes from ?30,000 to ?50,000 as well as a reduction in the age at which Triviality can be obtained from 60 to 55.

‘Triviality payments will now form part of an individual’s taxable income in the year of assessment, as opposed to the flat rate of 10% previously, so an individual will now pay tax at their marginal rate on a pension pot they wish to trivialise (after any tax-free element has been deducted). The same amendments to the Triviality rules will also extend to the Fund Remnant regulations and, by consequence, this offers even more flexibility to pension savers.

‘In practice what this means is an individual with a pension pot in the region of ?70,000 will effectively be able to access their pension pot in full from as early as age 55 by taking their 30% maximum tax-free lump sum payment and then withdrawing the remaining fund in full, subject to their marginal rate of Isle of Man income tax.’

Among other measures announced by Mr Teare were confirmation that the Basic State Pension will rise 2.9% in line with the UK, there will be no changes to the Manx Pension Supplement, pensioners on the lowest incomes will receive an additional increase of ?5 per week and work is underway to look at the design of a new Manx State Pension.

Mr Teare also outlined an agreement, signed on 28 January, which formally separates the Isle of Man from the UK on state pension matters in relation to anyone reaching state pension age on or after 6 April 2016.

Notably, Mr Teare also made comments on the progress of discussions regarding the possibility of full pension freedoms – as permitted in the UK from 6 April 2015 for defined contribution pension pots – being introduced to some extent in the Isle of Man as follows: ‘In July last year Tynwald passed a motion regarding pension freedoms. A working party was set up by the Department of Economic Development to review this issue as I consider myself to be conflicted in this matter. The working party continues to consider if it will be possible to introduce absolute freedom within pensions without destroying our pension industry or halting transfers from the UK. I am sure Members will appreciate this is a very complex issue and one which has to be dealt with carefully.’

Mr Kiernan said: ‘As the Island’s leading pensions consultancy firm, we would completely support the view expressed above, in that any decision in this regard should be entered into with great caution and only after the potential impact of such a measure has been properly analysed in full detail. At this stage, the extension of the Triviality/Fund Remnant provisions is a sensible decision. We await with interest any further developments and will, of course, be contributing to any consultations that may open up in the future on this matter.’

He added: ‘Boal & Co will be carefully monitoring developments in this area as the working party continues its deliberations.’

Senior Consultant Mark Doyle said, based on Mr Teare’s speech, only minor changes to personal income taxation had been made.

He explained: ‘The Minister said there would be no changes to income tax rates, Personal Allowance Credit or the “Tax Cap”, that the rate of income tax on taxable income for non-resident individuals will remain at 20%, but importantly that Personal Income Tax Allowance will only increase by ?1,000 to ?10,500, instead of the original proposal to extend this to ?14,000.

‘Mr Teare confirmed the 10% income tax rate band will be retained, contrary to the general consensus that this was to be abolished in its entirety. However, the 10% rate will only now apply to the first ?8,500 of a person’s taxable income (i.e. the amount over and above the enhanced personal income tax allowance of ?10,500) before the 20% income tax band is reached and comes into effect.

‘From a pensions perspective, it will be important for individuals who are attracted to the idea of accessing their pension pots under the new Triviality/Fund Remnant rules to carefully consider and seek proper financial advice on the impact of a decision such as this, in light of the amendments to income taxation, as outlined above.’

He added: ‘The aim is to help those on the lowest incomes, but as ever the full impact of these changes to people across all income brackets in the Isle of Man will become more apparent as the fine detail of the 2016 Budget is analysed.’