An Executive Pension is a pension set up by a Limited company for the directors of the company. The pension is set up under a trust, which is often provided free. Both employers and employees can make contributions, although, in the case of owner directors (including contractors), it’s much more tax advantageous for company monies to fully fund the plan.
Executive pension plans offer huge advantages over personal plans particularly when it comes to higher tax-deductible contribution limits and the option to draw down the benefits from age 50. Employer contributions effectively receive 52% tax relief as opposed to up to 40% on personal pension plan alternatives.
Also, while there is an earnings cap of €115,000 for personal contributions, there is no cap for employer pension contributions, which allow the use of company monies to fund for a maximum projected pension of 2/3rds of your final salary and a maximum retirement fund of €2m.
Regular pension contributions are made by direct debit through the company’s bank account monthly and variable lump-sum payments can also be injected at anytime e.g. before your company year-end. You can set up an executive pension for any senior executive or director employed by the company who is drawing a salary, including your spouse.
- Can be entirely funded through company contributions.
- Full corporation tax relief.
- No USC or PRSI on employer-paid contributions.
- No benefit in kind.
- Your investment grows free of both capital gains tax and income tax.
- 25% retirement lump sum.
- Fund access from age 50 onwards.
- Your Executive Pension is portable meaning transfer it to a new company pension if so needed and can also accept a transfer in from previous employer pensions.
- You can plan how your eventual retirement benefits are taken, in order to reduce your tax liability. For example, you may take a portion of your benefits as a pension lump sum and/or set up an Approved Retirement Fund (ARF) to keep your investments in a tax-efficient environment.
- Allows an owner-director to ring-fence company money in their own name and away from their business.