Planning for retirement is vital for everyone, but it’s especially important if you’re self-employed or running your own business. Without the backing of an employer pension scheme, the responsibility of building an adequate retirement fund falls firmly on your shoulders.
This guide explains everything you need to know about pensions for self-employed individuals and company directors in Ireland. We’ll cover:
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The pension tax breaks available
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Key differences between PRSAs, Personal Pensions, and Master Trust Executive Pension Plans
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Retirement benefit options
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How to achieve the best value by managing plan charges
Understanding Self-Employed Pensions in Ireland
If you’re self-employed, you may qualify for the Irish State Pension (contributory or non-contributory). The contributory pension is slightly higher but depends on your PRSI contribution record.
However, State Pension payments are modest and unlikely to meet your full retirement needs. With people living longer than ever, setting up a privately funded pension plan has become essential.
Pension Options for Sole Traders: Personal Pension vs PRSA
Sole traders and partnerships generally have two choices:
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Personal Pensions (Retirement Annuity Contracts – RACs)
Contribution Tax Relief
Both offer identical tax relief limits, based on age and income. The older you are, the higher the percentage of earnings you can contribute at your marginal PAYE tax rate.
Retirement Benefits
At retirement, both allow you to:
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Take 25% of the fund tax-free (subject to €500,000 maximum, with €200,000 completely tax-free and the balance taxed at 20%).
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Use the remainder to either purchase an annuity or invest in an Approved Retirement Fund (ARF).
Death in Service
With either a Personal Pension or PRSA, the full value of your fund passes to your estate (tax-free between spouses).
Plan Charges
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Personal Pensions often carry lower annual management charges (AMCs under 1% p.a.) but include policy fees and early exit penalties within the first 5 years. They suit long-term self-employed individuals unlikely to require flexibility.
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PRSAs are more flexible—no early exit charges, no policy fees, and contributions can stop and start easily. Standard PRSAs are capped at 1% AMC, while non-standard PRSAs allow broader investment choice but may carry higher charges.
Key Takeaways for Sole Traders
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A PRSA is usually the most flexible and popular option.
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If choosing a PRSA, opt for a non-standard plan with 100% allocation and negotiate charges to around 0.75%–1.00% AMC plus broker support fee of 0.25% p.a.
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A Personal Pension may suit if you’re certain you’ll remain self-employed long term and don’t need the flexibility of a PRSA.
Pension Options for Company Directors: Executive Pension vs Executive PRSA
If you’re a proprietary director of a limited company, or a contractor working under an umbrella firm, your options are:
Contribution Tax Relief
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Executive PRSAs: The company can contribute as much as it wishes, provided your overall pension value does not exceed the €2M Standard Fund Threshold (SFT).
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Executive Pension Plans: Contributions are restricted by Revenue funding limits based on your salary and service, and a maximum pension of two-thirds of final salary.
Death in Service
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Executive Pension: Up to 4 times salary is paid tax-free to your estate, with the balance used for retirement benefits.
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Executive PRSA: The full value of the fund passes to your estate tax-free between spouses.
Retirement Benefits
Both allow a 25% tax-free lump sum plus ARF/Annuity options.
However, Executive Pension Plans can provide a higher tax-free lump sum (up to 1.5 × final salary) if you have 20 years’ service and increase salary before retirement.
Directors can also retire early from age 50 under an Executive Pension, provided all company ties are severed.
Plan Charges
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Executive PRSAs: Same charges as standard PRSAs (see above).
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Executive Pension Plans: Typically 1% AMC with 100% allocation, but you may secure a 0.75% AMC in exchange for a 3% contribution charge (97% allocation). Monthly policy fees apply, but no early encashment penalties on modern Master Trust versions.
Key Takeaways for Directors
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Executive PRSA: Best for maximum flexibility, tax relief efficiency, and estate planning advantages. Negotiate for 100% allocation, AMC of ~1%, and broker support fee ≤0.25% p.a.
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Executive Pension: May suit if you want early retirement options or aim to maximise your tax-free lump sum through salary/service rules.
Why Private Pensions Are So Effective
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Tax Relief: Contributions receive full income tax relief.
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Tax-Free Growth: Pension funds grow without being taxed on investment returns.
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Flexibility: Range of retirement options including lump sum, annuity, and ARF drawdown.
These features make pensions the most tax-efficient way to save for retirement in Ireland.
Final Thoughts
Most self-employed people understand that any monies that they invest into a private pension plan will be free of income tax at their marginal rate, but don’t immediately appreciate the benefits of tax-free growth. All pension plans are in effect long-term savings plans, but they present the only form of savings or indeed investing that is not taxed in its growth phase.
In achieving this growth, dependent on the term to retirement, attitude to risk as well as ethical investment preference, an individual assessment is required. But be careful of a one size fits all approach (as it sits within your risk space). Consider fund manager diversification, in addition to the asset diversification that multi-asset funds provide. A robust broker investment philosophy is key.
Since the Finance Act 2022, PRSAs have become the most attractive choice for the majority of self-employed professionals and directors. They offer:
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Broad fund choice with non-standard PRSAs
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Flexibility with contributions and retirement timing
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Better estate planning advantages than Executive Pensions
In Choosing a PRSA, Always Seek:
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A full provider comparison (charges and fund performance)
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A non-standard plan with 100% allocation
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A low AMC (0.75%–1.00%) plus broker support fee of: 0.25% p.a.
Speak with a Financial Advisor
To arrange your free no-obligation initial consultation by phone, contact us today. Contact: Ken O’Gorman – Director – CB, QFA, RPA, SIA – One Quote Financial Brokers on: 01 845 0049 or email: ken@onequote.ie
Or enquire online and give us a quick outline of how we can help.
