Executive Pensions in Ireland

An Executive Pension in Ireland is a tax-efficient retirement savings plan set up by a company to benefit key executives and directors. Here’s how it works:

An Executive Pension Plan is designed for key personnel in a company, typically senior executives and company directors. The eligibility criteria are as follows:

An executive pension offers several advantages beyond those of a standard non-executive pension scheme.

The key benefit is the ability to contribute a higher percentage of income while still qualifying for tax relief.

Additionally, the company can make contributions on behalf of the executive without incurring PRSI charges. Executives can begin accessing benefits from the age of 50, and the tax-free lump sum at retirement is up to 25% of the total fund, compared to the standard 20% in non-executive pension schemes.

Given the benefits this scheme can provide for those who can utilise them, it’s well worth considering a Small Self-Administered Pension (SSAP).

Over 90% of all businesses in Ireland are small or medium-sized enterprises While both employee pension schemes and executive pension plans are tax-efficient and allow employer contributions, there are key differences. Executive pension plans offer greater flexibility and higher contribution limits compared to standard employee schemes. Additionally, executive pensions provide enhanced benefits such as early access to funds from age 50, company-funded contributions without PRSI liabilities, and a higher tax-free lump sum of up to 25% of the pension pot, whereas employee pension schemes typically offer a standard tax-free lump sum of 20%.

Executives can begin accessing benefits from the age of 50, and the tax-free lump sum at retirement is up to 25% of the total fund, compared to the standard 20% in non-executive pension schemes.

If you are a director holding more than 20% of the company’s voting rights, Revenue generally requires you to sell your shares and end all involvement with the company to access pension benefits before reaching the standard retirement age if you want to access your executive pension before normal retirement age.

Setting up an Executive Pension Plan in Ireland involves several steps, as it requires compliance with specific rules and Revenue approval. Here’s a step-by-step guide:

1. Confirm Eligibility

Ensure that the individual to be covered by the pension is a company director, senior executive, or key employee with a formal employment contract.

2. Engage a Pension Provider

Contact us and we will guide you through the process and help you select a suitable plan based on your needs.

• Pension providers offer various investment options and fund types, including equity, bond, and mixed asset funds.
• Ensure the provider is approved by the Pensions Authority and Revenue Commissioners in Ireland.

3. Set Up the Trust-Based Scheme

An executive pension must be established under a trust. The company typically acts as the trustee, ensuring proper management and compliance with regulations.

• The trust deed and rules document must outline the terms of the pension scheme.
• The employer, as trustee, is responsible for ensuring contributions are made and invested appropriately.

4. Determine Contributions

Decide on the level of contributions from both the employer and the executive.

• Employer Contributions:
  The company can make substantial contributions, which are tax-deductible.
• Employee Contributions:
  The executive can also contribute personally, benefiting from income tax relief up to specified limits.

Revenue sets limits on how much can be contributed based on age and salary. Higher contributions are generally allowed for older executives nearing retirement.

5. Register the Pension Scheme with Revenue

Once the trust and contribution details are in place, the pension scheme must be registered with the Revenue Commissioners to obtain approval for tax benefits.

• The scheme must comply with Revenue guidelines on maximum fund limits, allowable benefits, and retirement ages.

6. Select Investment Options

The contributions made to the pension are invested in funds chosen by the executive, with guidance from the pension provider. Investment options can include:

• Equities (stocks)
• Bonds
• Property funds
• Cash or money market instruments

Diversification is key to balancing risk and return over time.

7. Monitor and Manage the Pension

Once the executive pension is established, it’s important to review and manage the plan regularly:

• Annual Reviews:
  Regularly review the investment performance and adjust contributions as needed.
• Compliance Checks:
  Ensure ongoing compliance with Revenue rules, including changes in contribution limits or benefit options.

8. Accessing Benefits

When the executive reaches retirement age (or retires early from age 50), they can access benefits, including:

• A tax-free lump sum of up to 25% of the fund.
• The option to transfer the remaining balance into an Approved Retirement Fund (ARF) or purchase an annuity for a guaranteed income.

Conclusion

Starting an executive pension in Ireland requires proper planning, registration, and compliance. Engaging an experienced financial advisor or pension provider is crucial to ensure the scheme is set up correctly and maximises the available tax benefits.

Contact MyPension today, to get started with your executive pension plan.

An Executive Pension in Ireland is an excellent tool for business owners and key executives to save for retirement in a highly tax-efficient manner. It provides flexibility in contributions, investment choices, and withdrawal options while offering attractive tax advantages.

If you’re considering setting up or accessing an Executive Pension, it’s advisable to seek professional financial advice to ensure it aligns with your retirement and tax planning goals.

Contact MyPension today, to get started with your executive pension plan.