Executive Pensions in Ireland

Key Advantages of an Executive Pension

An Executive Pension offers several advantages over a standard non-executive pension scheme, including:

• Higher Contribution Limits:
  Executives can contribute a larger percentage of their income while still qualifying for full tax relief.

• Employer Contributions Without PRSI:
  Companies can make pension contributions on behalf of executives without triggering PRSI (Pay Related Social Insurance) charges.

• Early Access to Benefits:
  Benefits can typically be accessed from age 50, earlier than many standard pension options.

• Higher Tax-Free Lump Sum:
  At retirement, executives can withdraw up to 25% of the pension fund as a tax-free lump sum—compared to a 20% maximum under standard non-executive pension schemes.

Given the valuable benefits available to those who qualify, an Executive Pension is well worth considering.

With over 90% of businesses in Ireland classified as small or medium-sized enterprises (SMEs), many company directors and key executives are ideally positioned to take advantage of these flexible retirement structures.

While both employee pension schemes and executive pension plans are tax-efficient and allow for employer contributions, there are important differences:

• Greater Flexibility and Higher Contribution Limits:
  Executive pensions allow for significantly higher contributions compared to standard employee schemes.

• Enhanced Benefits:
  Executive pensions offer early access to retirement benefits from age 50, employer contributions without PRSI liabilities, and a higher tax-free lump sum of up to 25% of the total fund—compared to a standard 20% lump sum under typical employee pension schemes.

For those who can utilise them, executive pensions provide a powerful and flexible tool for building wealth in a tax-efficient manner for retirement.

Executives can begin accessing pension benefits from the age of 50, with the option to take a tax-free lump sum of up to 25% of the total fund up (lifetime limits apply).

However, if you are a director holding more than 20% of the company’s voting rights, Revenue typically requires you to sell your shares and fully sever your involvement with the company in order to access pension benefits before the normal retirement age.

How to Set Up an Executive Pension Plan in Ireland

Setting up an Executive Pension Plan involves several steps to ensure compliance with Revenue regulations and to secure the full range of available benefits. Here’s a step-by-step guide:

1. Confirm Eligibility

First, ensure that the individual covered 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 of selecting a suitable plan tailored to your needs.

Pension providers offer a range of investment options, including equity, bond, and mixed-asset funds. It’s essential to choose a provider approved by both the Pensions Authority and the Revenue Commissioners in Ireland.

3. Establish a Trust-Based Scheme

Executive pensions must be set up under a trust arrangement:

• The company typically acts as the trustee.

• A trust deed and rules document outlines the pension scheme’s terms.

• The employer, as trustee, is responsible for ensuring proper contributions and investment management.

4. Determine Contributions

Set the level of contributions from both employer and executive:

• Employer Contributions: Substantial, tax-deductible contributions can be made by the company.

• Employee Contributions: The executive may also contribute personally, qualifying for income tax relief within specified limits.

Contribution amounts are typically based on the executive’s age and salary, with higher limits available for older executives approaching retirement.

5. Register the Pension Scheme with Revenue

The scheme must be formally registered with the Revenue Commissioners to qualify for tax benefits.
It must adhere to Revenue rules regarding maximum fund limits, eligible benefits, and retirement ages.

6. Select Investment Options

Contributions are invested in selected funds, with options including:

• Equities (stocks)

• Bonds

• Property funds

• Cash or money market instruments

A diversified portfolio helps balance risk and return over time.

7. Monitor and Manage the Pension

Ongoing management of the pension plan is essential:

• Annual Reviews: Regularly review investment performance and adjust contributions or fund choices as needed.

• Compliance Checks: Ensure ongoing adherence to Revenue guidelines, particularly regarding contribution limits and benefit options.

8. Accessing Benefits

Executives can begin accessing pension benefits upon retirement (or from age 50 if retiring early), which include:

• A tax-free lump sum of up to 25% of the pension fund.

• The option to transfer the remaining balance into an Approved Retirement Fund (ARF) or to purchase an annuity for guaranteed income.

Executive Pensions in Ireland: A Powerful Retirement Planning Tool

An Executive Pension is an excellent solution for business owners and key executives looking to save for retirement in a highly tax-efficient way. It offers flexibility in contribution levels, investment options, and withdrawal choices, all while providing significant tax advantages.

If you are considering setting up or accessing an Executive Pension, it is highly recommended to seek professional financial advice. A tailored approach will ensure your pension strategy aligns with your broader retirement and tax planning goals.

To better understand your options, contact us today.