Executive retirement plans – what you may not know

Most of us know about the generous tax relief for individual pension contributions – but not many of us know about the benefits for Company directors

This blog goes into brief detail on tax benefit for your company on contributions and also how to increase your tax free lump sum at retirement – i.e. how to achieve the max tax free €200,000. Not just 25% of your pension pot but 1.5 * final remuneration (up to max tax free of €200K)

An executive retirement plan build up a fund which allows the company to provide retirement benefits for directors and key employees.
If you are a Co-Director you can provide greater pension funding through your company using this method than if you were self employed
 
The benefits are:

• Contributions can be offset against corporation tax
• No BIK implications
• Tax free cash at retirements – greater than if self employed
• Possibility of early retirement
• Valued staff (not just directors) can be included
• Valued staff can be encouraged to join company
• Company can make much larger contributions that an individual can

 
The extent of pension tax relief available is so significant that in most cases it is more beneficial pay funds into a pension that increase salary or give bonus.  The amount can be substantial. The below chart shows the revenue approved limits.
Revenue approved limits for individual’s vs Revenue approved limits to Directors

But the key benefit is this – if you are a company director with no pension provision in place your company can start funding late for your retirement, by making a company contribution in certain cases to your pension up to nearly 4 times their salary.
Future Funding Options to target Revenue Maximum Limits:
e.g. A 51 year old female with no pension provision in place earning a salary of €120K can pay €254K pa into her pension. Or if company funds allow make a single contribution of €1.280M and then pay €111K pa until retirement.
At retirement
Company directors can ensure they maximise their tax free lump sum by – if they have 20 years’ service they can avail of tax free lump sum of 1.5 * final remuneration.
In the example above the lady can obtain 1.5*120K lump sum tax free – therefore 180K tax free – if she wants to reach the max threshold of €200k tax free she only needs to increase her remuneration in the last 3 years before retirement.
If pension planning takes place now the above can be obtained.