Pension freedoms may be spreading to the Isle of Man soon, according to speculation sweeping the offshore finance centre.
The Isle of Man financial services sector has stressed that UK-style pension freedoms are needed for businesses to remain competitive.
The measure is likely to extend to all Qualifying Recognised Overseas Pension Schemes (QROPS) and will give the Isle of Man an edge over rival financial centres offering the offshore pensions for expats without pension freedoms.
Only Malta operates pension freedoms out of 28 financial centres that provide QROPS, although Gibraltar has indicated work is underway to introduce the measure.
The Isle of Man pension freedom upgrade is expected to be included in the island’s budget on February 20.
Treasury tight-lipped over Budget plans
The government’s Treasury Department would not confirm the speculation, adding the contents of the budget will stay confidential until announced.
Finance industry leaders are behind the move, but want a detailed risk assessment before pension freedoms are introduced to establish how the measure might impact the island’s economy.
In the UK, pension freedoms started in April 2015 by then Tory Chancellor of the Exchequer George Osborne.
Under the rules, any direct contribution pension saver aged over 55 years old can withdraw money from their fund to spend as they wish.
Recent figures from the UK HM Revenue & Customs revealed 772,000 retirement savers withdrew £6.5 billion from their pensions in 2017.
How UK pension freedoms work
The research highlighted that pension fund withdrawals remained at broadly the same level throughout the year.
Since April 2015, retirement savers have taken £15.7 billion out of their pension funds, with the average amount taken out of the fund hitting around £7,586.
Other industry research suggests that the money is spent on paying down debt and big-ticket purchases, such as cars, home improvements and exotic holidays. Some also goes towards helping children with deposits for buying a home.
Pension freedoms do come with warnings for retirement savers.
Tax is charged on all withdrawals outside the 25% tax-free lump sum. Each withdrawal reduces the pension pot, which can upset anticipated retirement income calculations as fund growth reduces each time money is taken out.