Directors Pension
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DIRECTORS/EXECUTIVE PENSIONS
Imagine taking the pain of setting up a business and then walking away from it empty-handed when you retire? Not a pleasing scenario – certainly not the outcome you want for you when the day comes for you to walk away. You don’t want to see all your effort, struggle, and sacrifice go all unrewarded. This is why you must plan the exit from your business in advance.
And you can do that by starting a Directors pension. A directors pension (also known as an executive pension) is one of the best financial ways to save money and increase your wealth while you’re still working. This pension plan facilitates the transfer of cash from your company’s bank account into your long-term savings account. An amazing plan to save up for your retirement in a tax-efficient way.
TURN BUSINESS PROFITS INTO RETIREMENT WEALTH WITH DIRECTORS PENSIONS
Please see the infographic of how company/occupational pensions work.
If you are a member of a company/occupational pension scheme, both you and your employer usually contribute into your pension fund. AVCs on the other hand are, as their name says, voluntary, so it is usually only the employee that contributes into this additional pot of pension money. These additional contributions still qualify for tax relief at your marginal rate of tax that you pay (subject to revenue limits).
AVC Access
Access to your AVC pension pot is restricted to the access/draw down rules of your main employer pension scheme. This is usually age 60-65.
Extracting profits from your business
If your company has made profits in a particular year, there are 4 ways in which you can extract these profits from the business
- Pay yourself extra salary/commissions/bonus
- Pay dividends to the shareholders
- Make Pension Contributions
- Make a Corporate investment
All of the above have tax implications for either the directors or the company. The most tax efficient method of method from all of the above is by far, contribution into a directors pension.
2 Tax benefits of Directors Pensions
Example 1
Director Pension contributions are made from the company bank account into this pension vehicle. These contributions can be made monthly or annually. The annual contributions are usually made in a lump sum at year end in order to reduce your corporation tax liability.
The following tax benefits apply to these contributions
- There is no personal tax liability (PAYE/PRSI/USC) or BIK for the directors
- the companygets corporation tax relief (12.5%) on the contributions being made.
- The Pension contributions, when invested, benefits from tax free growth for the entire term of the pension plan. The compounded (tax free) interest effect of making consistent returns over a 10-20 year term can have a hugely positive impact on the overall pension fund value.
All other methods of extracting
Money from your company has tax implications
Salary: (PAYE, PRSI & USC): 52%+
Dividends: 25%– 40%
Capital Gains: 33%
Benefit in Kind (company cars etc):30%
Pension contributions 0%
Building Yourself Into The Business Plan
Smart business owners structure their companies in a way that serves them.
It can be easy to forget that your business is ultimately there to serve you.
As a director, you are in the unique position of being able to combine your current income needs and future income needs into one coherent plan.
And that plan is the amount of money you accumulate by the time you step away from your business.
Once you’re set up you can be confident that your business is actively building your net worth each month.
How Are Director Pension Entitlements Calculated?
Revenue Commissioners will allow you to build a retirement asset up to a limit of €2,000,000 as a company director.
However, the actual amount you can target under revenue rules is determined by a formula which is determined by your;
- Age
- Gender
- Marital Status
- Retirement Age
- Annual Income
- Potential Service
- Existing pension values
A Standard ‘Max Funding Pensions calculator’ is used to determine how much, each year a director can contribute into his/her pension.
Pensions contributions can be backdated 10 years in order to max out the director pension limits.
Expert Guidance on PRSA Pension Ireland for Optimized Retirement Planning
Money Maximising Advisors are experts in financial planning and investment strategies, guiding individuals with tailored advice on PRSA Pension Ireland. We empower clients in making informed decisions about their Personal Retirement Savings Account Ireland (PRSA) by creating personalized strategies aligned with long-term retirement goals. Advisors optimize contributions, select suitable funds, and maximize returns while leveraging tax benefits. Through transparent communication and continuous support, we offer a strategic approach to efficient PRSA Pension Scheme Ireland to changing financial landscapes.
The Tax-Free Cash Option For Company Directors.
Even if pensions aren’t your thing, you should still have a director scheme because you can opt for the tax-free cash option.
This allows you to build up a cash fund that can be paid out in full from age 60.
How is a Directors Pension Set Up?
Director pensions are set up under trust which means they’re legally separate from the business and you i.e. you’re building wealth independently from your business.
The legal trust is established via letter of exchange which is signed by all parties prior to going live.
Once in place, the company can make regular monthly payments on your behalf until your nominated retirement age.
What age can you access an executive pension?
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