A Director’s Pension (commonly structured as a Master Trust, introduced in 2022) is a company-sponsored pension arrangement designed specifically for business owners and company directors.
It allows contributions to be made directly by the company, offering a highly tax-efficient way of extracting value from the business while building long-term retirement savings.
A Master Trust 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
Master Trust Advantages:
1. Master Trusts 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 Plan you avoid the PRSI and USC charges that would still apply to personal pension contributions, with no BIK liability!
3. Master Trusts 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 €2.2 million (2026).
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 pot, or 1.5 times your final salary tax-free if more beneficial and you have sufficient company salaried service. The first €200,000 is tax-free and and balance up to the next €300,000 is taxed at 20%. This equates to up to €440,000 Cash, where your plan is sufficiently funded come retirement.
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, a Master Trust 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 a Master Trust Provider:
We offer a choice of five leading executive pension plan providers, with most currently providing trustee services at no additional cost. These include Irish Life, Standard Life, Zurich Life, Aviva, and New Ireland.
However, this does not mean investment options are limited to each provider’s in-house funds. Each platform offers access to a broad range of external fund managers, including leading global names such as BlackRock, Fidelity, Vanguard, State Street, and J.P. Morgan.
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, always ensure 100% allocation and will charge just 0.25% PA for our long-term support.
The base underlying Annual Management Charge (AMC) will be dependent on the time horizon of the Master Trust, alongside the size of contributions (regular or single premium) and of course the funds chosen.
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 Master Trust clients.
Death before Retirement
If you were to die before retiring or drawing on your Master Trust 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. Dependents then have the choice between an Annuity and an Approved Retirement Fund (ARF) in terms of the balance.
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 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 and what you’ll get in return.
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 Master Trusts can be a little complex. We recommend that you seek advice from a One Quote Advisor to make sure the Pension 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.
