OK, so I probably need to be a bit more specific. A better title would probably be, ‘What’s Going on with Isle of Man Personal Pensions as they are inferior to UK Personal Pensions’ would probably have been better – if not a little more heavy. Anyway, in the spirit of good blogging let me elaborate.
So, in the Isle of Man we basically have three pension types, Defined Benefit (we’ll ignore these for now), Defined Contributions and Group Schemes. Technically speaking Group Schemes (or Group Personal Pensions) are actually Defined Contribution as well – in that we know how much we are contributing into them (hence the name) but not what our pension will be at retirement (with any certainty).
Now on the island if you are a member of a Group Scheme – the chances are that it will be one that belongs to a very well-known UK insurance company. However, unlike our UK counter-parts upon retirement in these Isle of Man versions of the schemes, we only have the choice of either accepting a very restricted (and expensive) annuity or transferring out to a SIPP, whereupon we have a restriction placed on us on how much we can withdraw (known as capped drawdown).
We do not have the option of any sort of flexible access drawdown (FAD) arrangement and we certainly don’t have access to the wide range of flexible annuities that are now available in the UK. Whilst it could be argued that this is partly the fault of the said insurance company for not offering a wider range of annuities to its Manx customers – the lack of flexible drawdown arrangement lies purely and squarely at the feet of the Manx Government.
The Manx government has cited that its reluctance to move to a more flexible drawdown arrangement (like they have the UK) is in the belief that people who have saved all their lives into personal pension schemes, upon retirement are going to draw all their money out, spending it frivolously on sports cars, holidays and expensive watches, and then go cap in hand to the government when all their money has gone.
Now you may recall that such a notion was first touted when the UK government announced that it was to allow pension freedoms – but surprisingly enough the idea that people are suddenly going to have personality transplants and move from lifelong pension savers to spending money quicker than it can be printed, proved to be a very unfounded fear.
There are two other points to make about FAD on the Isle of Man (or lack of it). Firstly, if we have FAD then retirement planning becomes more appropriate and relevant. For example, in the early years of our retirement we still have our health and our lifestyle will probably not be too different from what it is pre-retirement, except with more holidays and disco dancing, therefore it stands to reason that we will need higher income levels. This eases off in our mid-retirement phase as our spending decreases, before increasing again later, so it makes perfect sense to have a flexible arrangement to be able to do this. We cannot do this with any sort of capped drawdown to the same degree.
Secondly (and this is more fundamental), for all of our lives we have been encouraged to save for our retirement. Successive governments have told us how important it is and have given us lots of tax breaks to encourage us. The restrictions on us placing money into pensions have been very liberal. But come our time to take it out we are then being told what is good for us and how much we are allowed to take – OF OUR OWN MONEY!
As of writing, there are no plans by the Manx government to offer anything close to the flexibility of UK pensions, which is a shocking state of affairs given we are meant to be a leading finance jurisdiction.