Directors Pension for Business Owners

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Business Owner Pensions
Business Owner Pensions

A directors pension for business owners, otherwise known as an “Executive Pension Plan” is in effect a one-person company pension plan and as it can be fully funded by your company, it represents the most tax-efficient transfer of cash from your company’s bank account into your own name for your own financial future. It also means that an Executive Pension can avoid Income Tax, PRSI & USC, and because it must be set up under a trust, it will always remain safeguarded and independent of your company’s assets.

Pension Options for Company Directors & Small Business Owners

The Key Advantages:

1. Executive Pensions offer full corporation tax relief on all company contributions, tax-free investment growth, and tax-free cash come retirement and also unlike any other regular contribution pension plan allows benefit drawdown from age 50 onwards.

2. Where you use only company money to fund your Executive Plan you avoid the PRSI and USC charges that would still apply to personal pension contributions, with no BIK liability!

3. Executive Pensions offer the most scope for higher contributions (and the relevant tax relief) and allow you to build up a pension fund that will provide a Director with a pension of 2/3rds of the final pensionable salary – subject to a maximum fund value of €2 million.

4. A broader scope for your tax-free cash at retirement also exists, so that when it comes to retirement you can take either 25% of your retirement or 1.5 times your final salary tax-free if more beneficial and you have sufficient company service.

5. Where your spouse is employed and paid a salary within your company, the company can also be used to fund a pension on their behalf.

Taxation Comparison – Cash Extraction

By way of comparison, an Executive Pension Plan massively stacks up against the other ways of taking cash from your business.

• Salary: (PAYE, PRSI & USC): 52%+
• Dividends: 25% – 40%
• Capital Gains: 33%
• Benefit in Kind: 30%
• Pension Contribution 0%

Choosing an Executive Pension Plan Provider:

We offer a choice of 5 leading executive pension plan providers, with most offering free Trustee Services at this time. These include Irish Life, Standard Life, Zurich Life, Aviva, and New Ireland. Your personal recommendation will be based on your investment risk profile, but also on the best value provider in terms of your plan charges, with a huge range of funds and the ability to construct a flexible low-cost portfolio. In fact, regardless of your recommended provider and funds, we will never take any renewal commission and will charge just 0.25% PA for our long-term support.

Managing Investment Risk

Usually, with pensions, it is considered more sensible to invest on a medium or high-risk basis when you are a long way from retirement (e.g., higher equity allocation) which gives a greater possibility of return in the earlier years, and subsequently when approaching retirement, to look at reducing exposure to volatility in the markets by de-risking the investment into lower to medium risk funds.

We provide 365 online access, quarterly market reviews, and annual portfolio reviews as standard to all our Executive Pension plan clients.

Death before Retirement

If you were to die before retiring or drawing on your Executive Pension, the value of your pension is payable to your estate, up to a limit of four times the level of your final salary from the company. The compulsory requirement for dependants to purchase an annuity with the balance of funds following the payment of the Revenue maximum lump sum on death in service will no longer apply under the Finance Bill 2021. Dependents will have the choice between an annuity and Approved Retirement Fund (ARF) options.

Corporation Tax Relief

Employer contributions to occupational pension schemes remain the most tax-efficient way of contributing to a pension scheme for and on behalf of owner directors.

1. Employer Regular Premium Contributions

Employer regular contributions to an approved occupational pension scheme may be allowed as a deduction against profits arising from trading activities for Corporation Tax (or income tax where the employer is a sole trader or partnership), in the employer’s accounting period in which it is paid.

2. Employer Special or Single Premium Contributions

Tax relief on special or single contributions made by the employer to an approved occupational pension scheme may be relievable in the accounting period in which they are made or, in certain circumstances, spread forward over a maximum period of 5 years.

Pension Options for Company Directors & Small Business Owners

Key Takeaways

A. Even by using a financial broker who offers unbiased Executive Pension advice and market analysis, you can still end up paying higher plan charges than necessary for the same provider options, ask your advisor about their level of trail commission!

B. If you already have an existing Executive Pension plan in place, you need to ensure that:

1. Your Pension Plan is being funded correctly.
2. Your plan charges are transparent and cost-efficient.
3. The Risk Profile of the fund and the underlying investments is in line with YOUR attitude to risk.

For More Information

The rules governing overall contributions to Executive Pensions can be a little complex. We recommend that you seek advice from a One Quote Advisor to make sure the Exec Plan is set up correctly, and to maximize the overall employer’s contributions to the scheme.

Please Note
There is no charge for an initial consultation, so if you want to be assured of the lowest charges and maximum fund choice, with dedicated long-term support, please contact us.

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