Pensions - General Information

Please contact your pension scheme trustees and administrator to confirm which legislation your scheme is approved under.

If there is still any doubt over the approval of the pension scheme and its legislative status after contacting the pension scheme trustees and administrator, please contact the Income Tax Division before making any decisions on what pension treatment to apply.

The sole purpose of a pension is to provide relevant benefits for the member in retirement.

By contributing to a pension scheme members are giving up certain rights and flexibilities linked to these monies, in exchange for the Assessor allowing generous income tax relief on personal pension contributions and not charging any income tax on the roll up of the pension scheme investments.

Isle of Man pension’s legislation therefore restricts employees from withdrawing monies from their pensions unless one of the following events applies:

Short service refund

• A short service refund may be allowed where an employee ceases to be a member of an occupational pension, approved under the Income Tax (Retirement Benefit Schemes) Act 1978, within 2 years of joining the scheme
• The employee’s contributions may be refunded to them subject to a tax of 7.5% on the full amount
• The tax should be deducted and sent into the Income Tax Division with a covering letter
• Such payments should be kept separate from any ITIP/NI remittances.
• This short service refund option is not available to employees who are members of a group personal pension, approved under the Income Tax Act 1989
• If an employee has been a member of an occupational pension scheme for more than two years their contributions cannot be refunded to them
• The employee’s options at this juncture are usually restricted to the possibility of a transfer to another pension scheme or the deferral of pension benefits until they reach retirement age

Serious Ill Health

• If an employee receives confirmation from a registered medical practitioner that they have less than 1 year to live, their pension contributions may be refunded to them by their employer
• Such refunds may incur a 7.5% tax charge so it is expected that approval and guidance should be sort from the Income Tax Division prior to making any serious ill health payment

Death prior to the employees date of retirement

• If an employee dies prior to drawing their pension their dependants may be entitled to receive a return of the deceased employee’s contributions and reasonable interest
• Such refunds may incur a 7.5% tax charge so it is expected that approval and guidance should be sort from the Income Tax Division prior to making any such payments

Incapacity

If an employee develops a physical or mental impairment that prevents them from continuing to carry out the duties that they were engaged to perform, the scheme trustees may decide to allow the payment of that members pension prior to normal retirement ages.

A detailed description of relevant earnings is outlined within Isle of Man pension legislation, but in its simplest form is generally the gross annual remuneration declared by the employer in Box A of the employees T14.

Relevant earnings do not include dividend income, termination payments or any remuneration from a director of an investment company.

Tax relief is only available where pension contributions are made into Isle of Man approved pension schemes.

Examples

1) Employee A pays £40,000 into an IOM approved pension scheme. Employee A has relevant earnings of £30,000

While IOM legislation allows pension contributions of up to £50,000 per tax year, tax relief will be restricted to the employee’s level of relevant earnings, which in this case is £30,000.

2) Employee B pays £30,000 into his UK employer’s pension scheme. The scheme is not approved by the Assessor. Employee B has relevant earnings of £150,000

Whilst the employee has relevant earnings, the pension scheme is not approved by the Assessor and as such no pension tax relief will be allowed.