Executive Pensions

Planning for the future - Should I be investing into a pension plan?

 

Sometimes when we ask clients about their pension plans they give us a look that says “Getting through the paperwork for this month is enough, never mind planning for years in the future”. At Kalc Accounting, we understand that, so we want to make it as easy as possible for you.

According to Central Statistics Office figures (Jan 2020), 60 per cent of workers aged 20 to 69 have some form of pension. Of those who don’t have one, more than a third (36%) say they simply haven’t got around to it. 60% say they’re planning on relying on the State Pension once they retire.

If you’re one of those still unconvinced about the value of pension investment, below are some interesting facts and figures. As always, if you need more information or you have questions, you can contact the Kalc Accounting team on (01) 8084191

 

How can contributing to a pension for the future save me money now?


 

Here’s one example: this person invested €1,000 euro in their pension and therefore saved €520 in tax and only had a ‘net’ contribution of €480:

So as you can see, if you focus on the big picture, you can start to build up the value of your pension fund pretty quickly.

 

Now for a look at some of the pensions options we find often suit our clients. First up, the Executive Pension. Below we’ve shared some of our expertise on the benefits, contributions and numbers involved with Executive Pension Plans, outlined real examples and answered some FAQs.

 

 

What is an Executive Pension?


 

An executive pension is a pension set up by the Ltd company for the benefit of the directors/employees of the company. The pension is set up under a trust and typically the employer will act as the trustee.

With an executive pension both employees and employers can make contributions. The ultimate value of your pension plan will depend on the contributions that have been made over the years and the investment return the funds have achieved in your Executive Pension.

 

 

What benefits does an Executive Pension Plan offer over a Personal Pension?


 

1. The limits on contributions to an executive pension are significantly greater than a personal pension. As you can see from the table below

 

Executive Pensions

Age

% of Salary - Male

% of Salary - Female

30

Up to 72%

Up to 67%

40

Up to 108%

Up to 100%

50

Up to 216%

Up to 200%

55

Up to 432%

Up to 400%

 

 

Personal Pensions

Age Band

Percentage of Gross Salary

Up to age 30

15%

Age 30 but less than 40

20%

Age 40 but less than 50

25%

Age 50 but less than 55

30%

Age 55 but less than 60

35%

Age 60 and older

40%

 

2. The tax relief is also more attractive. The maximum rate of relief on a personal pension contribution is 40%. If you contribute to an executive pension it is effectively saving you tax at 52%.  

3. You can also claim the benefit of your executive pension from the age of 50, but with a personal pension you need to wait until you’re 60.

 

 

How do I make contributions to the Executive Pension Plan?


 

Contributions are made through the company’s bank account monthly and you can also make lump sum payments, e.g. before your company year-end.

 

 

What are Self-Administered Pension schemes?


 

This is a Revenue-approved scheme set up by the company for a director. It differs from traditional pension plans provided by insurance companies as it is self-administered, which allows you to control your contributions and investments. You would need to appoint an independent trustee, as approved by the Revenue Commissioners, and you act as a co-trustee.

 

 

What are the benefits of a Small Self-Administered Pension?


 

This type of pension is flexible and allows you a high element of control. You have a large selection of investment options such as direct properties, shares and bonds to suit your risk profile. Your pension can also currently borrow but remember you need to work with your advisors, investment managers and accountant to choose the right investment strategy. You have complete investment control over your pension. You also have large scope to make contributions into the scheme.

 

When would I choose this over an Executive Pension?


 

You would usually only choose to invest in a self-administered pension scheme if you wanted to invest in assets which are not available in an executive pension, e.g.  direct property, purchase shares in unlisted companies etc, as the cost of set up and maintenance can be high in comparison to an Executive Pension.

 

How much can I contribute to my Pension through my Limited company?


 

This depends on several factors. Ultimately, as an individual making personal contributions you are limited to the normal revenue rules which relate to age and appropriate % of salary e.g. if you are in your 40’s its 25% of your salary. When it comes to the company making the contribution on your behalf, as is the case with an Executive Pension, then there are a range of factors in determining how much can be contributed.

  • Age
  • Gender
  • Marital Status
  • Chosen Retirement Age
  • Salary
  • Previous Pensions
  • Years of service with the current employer

This can lead to contribution factors such as those listed in the table below, which are obviously more favorable than using the Personal rates.

 

Age

% of Salary - Male

% of Salary - Female

30

Up to 72%

Up to 67%

40

Up to 108%

Up to 100%

50

Up to 216%

Up to 200%

55

Up to 432%

Up to 400%

 

Can I set up a pension for my spouse through the limited company?


 

Absolutely. You can set up a pension for anyone employed by the company who is drawing a salary. In some cases, it can prove to be an extremely tax efficient method of pension funding.

 

 

When can I draw down my pension?


You are eligible to claim the benefits of your executive pension from the age of 50. To do this, you must no longer be an employee of the company. So, for example you can fund your pension today, take a up a new role and subsequently begin to draw on your pension benefits from the age of 50, even though you are still working. The obvious caveat here is that you should only ever draw on your pension when you absolutely need to, as to do that will simply reduce the value of your future benefit when you’re relying solely on your pension for income. 

 

I have finished my current contract or business, what are my options regarding my pension provision?


 

You have 4 options:

  1. Retaining your benefits with the scheme – this means the funds will remain invested and you can claim at any age from 50
  2. Transferring your benefits to a new employer’s Occupational Pension Scheme - you can opt to transfer the value of your fund into your new employer's pension scheme (if applicable)
  3. Transfer benefits to a Personal Retirement Bond – A Personal Retirement Bond (PRB), which is also sometimes known as a Buy-Out-Bond, is used by the trustees of a pension scheme to buy retirement benefits for former members of their pension scheme. A PRB is a personal policy in the name of the PRB holder. When a member leaves a pension scheme, the value of their fund when they leave the pension scheme is invested in the bond. When they retire, they can then use the proceeds of the PRB to provide retirement benefits
  4. Depending on your circumstances you may also be entitled to transfer to a PRSA. This option is restricted to those with under 15 years of pensionable service with the employer. If the value of your pension is greater than €10,000 you will be required to pay for a Certificate of Comparison showing the pros and cons of transfer to a PRSA. A Certificate of Comparison can typically cost anything between €500 and €2,000 depending on the circumstances. A Certificate of Comparison is not required if the pension scheme is winding up.

 

If you have any questions on Executive Pension Plans or anything related to the above, don't hesitate to contact us on (01) 8084191. We would be happy to point you in the direction of our Wealth Management Partner.