The introduction of pension freedoms has been one of the island’s worst-kept secrets, with rumours and speculation having circulated for several months prior to the budget announcement.
Cannan said he would ensure that proper guidance is given to financial advisers to assist them with the new measures.
Currently, a pension pot of less than £50,000 (€56,455, $70,058) after tax-free cash has been taken (£71,000 in total) can be fully accessed under what are known as the triviality and remnant rules.
These rules will be amended so that the limit is now £100,000 net of tax free cash, which translates to full access for a pension pot of up to £142,000 without having to pay the transfer charge.
“Secondly, I will introduce a new pension scheme which will allow full access after age 55 and which will accept transfers from current approved schemes for a 10% fee.
“This new scheme will allow full tax relief on contributions and will be taxed at the usual rate but will have a large tax-free lump sum of 40%,” Cannan said.
Martin Hall, director of pensions at fiduciary and pensions group Optimus, warned that it was “not all giveaways, though”.
“There will now be a maximum annual tax-relieved savings amount of £50,000 which applies to all tax-approved pensions on the Isle of Man, including those under current rules which until now have enjoyed an upper tax-relieved limit of £300,000 per annum.”
Responding to critics
Cannan noted in his speech that pension providers have been lobbying against pension freedoms and urging members of parliament to vote against the budget.
“I am not surprised by this Mr president given the fees these companies and their directors receive for handling and managing billions of pounds of pension funds but let me be clear: this is not their money and they most certainly are not in a position to judge that people cannot be trusted with their own money,” Cannan said.
He said the government should trust savers and pension holders to sensibly manage their own finances.
Years in the making
Cannan has been a “huge supporter of pension freedoms” since they were introduced in the UK.
He put a successful motion before parliament in July 2015 to introduce pension freedoms to the island.
Public consultation, which was released on the same day as the budget announcement, was carried out on this motion between 18 July to September 2017.
The consultation, which had 68 responses, said if parliament adopts the budget in its February sitting then pension providers on the island will be able to introduce the new scheme from 6 April 2018.
Optimus’s Hall said he is convinced pension freedoms will be a good thing for the island’s savers.
“You may well find that future contributions are diverted away from the limited range of options currently available towards schemes that are more relevant to individual retirement plans,” Hall said.
“As an industry, we have an opportunity, and perhaps a responsibility, to create products to meet that need,” he said.
Pension freedoms should not spell the end for the existing schemes, which should be able to “co-exist happily with the new kid on the block”, Hall said.
“There is absolutely no reason why individuals and companies cannot blend their approach to pensions according to the advantages of different sections of the tax code.”