Executive/Director pension

Recent finance acts have made executive pensions an attractive investment route for what are known as proprietary directors which most small company directors are. A proprietary director is defined as '…a director who, either alone or together with his or her spouse and minor children is or was, at any time within three years of the date of:

• The specified normal retirement date.
• An earlier retirement date, where applicable.
• Leaving service or the beneficial owner of shares which, when added to any shares held by the trustees of any settlement to which the director or his or her spouse had transferred assets, carry more than 5% of the voting rights in the company providing the benefits or in a company which controls that company…

Tax Relief:

Employers may contribute significant annual amounts up to Revenue maximum contribution rates to provide retirement benefits for Directors and Senior Executives. If the cost of funding these benefits is spread over the future working life of the director, then the annual contributions required are fully tax deductible against trading profits. This allows for a transfer of significant levels of profit from a company to a pension scheme. For example if the funding rate for an individual male aged 35 with no pension cover is 86%, he is looking at retiring at age 60 versus a maximum contribution rate of 20% under a personal pension plan or PRSA.

In short the key requirement is to be able to control more than 5% of the voting rights in the company at any time within 3 years of the date retirement benefits are being taken.

Executive Pension Plans are suitable for company directors and senior executives paid by way of salary or fees, which are chargeable to tax under Schedule E.

Key advantages include the following:

Flexible Retirement:

While selected normal retirement age must be between the ages of 60 and 70, a well funded Executive Retirement Plan gives you the flexibility to consider options such as early retirement, which is normally available from age 50 onwards.

Changing Contributions:

Premiums can be increased, decreased or skipped from any premium due date.

The cost of funding to provide these benefits may be borne in full by the Employer or may be shared between the Employer and the Director/Executive. Where the Director/Executive contributes part of the cost, personal contributions may be made up to 40% of salary and will attract tax relief at marginal rate.

For more information on maximum funding rates and rules on taking benefits please contact us.