Executive Pension V PRSA – If you’re a company director or senior executive, and your company is now seeking to pay pension contributions on your behalf, then a PRSA must now be considered alongside the Master Trust – Executive Pension Plan (EPP) alternative.
Also, if you’re a company owner and already have an Executive Pension Plan, but have reached your revenue maximum funding levels, in line with your current salary and company service, yet have additional company funds available, and have not already reached the maximum fund threshold of 2.15m, then a PRSA, in the great majority offers a fantastic new solution.
The reason that a PRSA is a now viable option for company pension funding is due to the significant changes made in the Finance Act 2022, which became law earlier this year.
The key impacts of these changes, specifically made to PRSAs, now allow:
- Employers to contribute to a PRSA, without an employee BIK implication
- No salary/service-related funding limits apply, only a maximum fund cap of 2.15M (from all Irish private pension sources.)
Which, in practical terms leads to these key PRSA advantages:
- Business owners can now maximise company contributions, in a much shorter space of time.
- It is not necessary to have a high salary, or long service to fund for €2.15M.
- Beyond age 60, it is not necessary to have physically retired form that employment funding your PRSA, to be able to drawdown those PRSA benefits.
- Those choosing a PRSA, can forgo the need to produce a payslip, each time they increase their regular pension contributions or invest a lump sum.
- Larger contributions can be made to a PRSA for an employee/director with a low salary and/or short service. than can be made under an EPP.
- No spreading of tax relief will apply, for once-off employer PRSA contributions, regardless of size, as there is no distinction for tax relief purposes between ordinary annual contributions and special contributions paid to a PRSA.
- Relief will be allowed in the company’s accounting period in which the contributions are paid, meaning greater certainty in respect of employer tax relief, than under EPPs, as no max funding calculations have to be done.
- Additional top-up funding can be made to a PRSA for cases that have already reached max salary-related funding levels under an EPP.
- Employer funding can be split over a number of PRSA contracts, to allow phased taking of benefits, which can’t be done with an EPP as all scheme benefits related to the same employment must be taken at the same time.
- A PRSA can be funded and/or continued to age 75.
- On death, the full PRSA value is payable as a tax-free lump sum to a spouse, under an EPP, this is restricted to 4 times salary, with the balance used to provide a taxable pension.
- Additional employer post-NRA funding can be made to a PRSA, which carries a right to take 25% as a lump sum, in cases where EPP benefits have already been taken at NRA and fresh EPP funding post-NRA would all have to be taken as a transfer to an ARF.
Executive Pension V PRSA
So, for new pension plans, is an Executive Pension a thing of the past?
For most people yes, as they carry a policy fee not applicable to a PRSA, place certain funding restrictions relating to salary and service, require Revenue approval, have a lower maximum retirement age, and limit the amount paid directly to your estate on death before retirement.
Another key advantage of a PRSA is that the client can have multiple PRSAs and retire them gradually if required. For example, a wealthy business owner could fund one PRSA of €800,000 to access the €200,000 tax-free lump-sum @ 60 and another to accumulate the balance of €1,200,000 later.
Are there any cases where a new Executive Pension might be more suitable?
- Executive Pension Plans are held under trust, meaning that they can never be accessed by creditors.
- Where a plan holder has a very large salary, in some cases a 1.5 times multiple may lead to a higher tax-free lump sum come retirement, than taking 25% of the retirement fund value.
- If using self-directed fund choices in line with a stockbroker, they are not currently available on most insurance company PRSA offerings.
If I have an Existing Executive Pension Plan, should I make a change now?
Firstly, beyond the nuances of taking late retirement, having multiple plans, and death benefit considerations, if you’re not restricted in terms of what your company can contribute by salary-related funding limits, then if your existing EPP has lower charges e.g., 100% net allocation and an AMC of 1.00% or less, then our general advice would be to stick with it.
If on the other hand, you are constrained by max salary-related funding levels under your EPP, you could consider transferring your EPP to a buy-out-bond or a single-premium PRSA, so as to lower the AMC and continue to fund via a newly arranged, regular payment PRSA.
Why consider One Quote Financial Brokers for a PRSA?
With a choice of 6 PRSA product providers and 24 separate fund managers, we will create an investment portfolio to suit you with:
- No set-up fees
- No investment allocation charges
- No renewal commission
- No policy fee
If you’re a company owner/director/executive seeking to set up a new pension plan to fund for retirement through the payment of employer contributions, then in the majority of cases a PRSA will prove the best option (based on current legislation).
If you would like to explore and discuss the new rules and how they may apply to you, your company or your employees, please get in touch.
Contact: Ken O’Gorman – Director – QFA, SIA, MCIBS – Investment Specialist
One Quote Financial Brokers on 01 845 0049 or email: firstname.lastname@example.org