If you are a director thinking about how you pay yourself, you might want to consider setting up a company pension plan and in particular a plan known as an Executive Pension Plan.
This kind of a pension plan provides a very tax efficient way of providing for the future retirement of the company directors.
1) Higher contribution limit
Whilst regular personal pension plans are always attractive from a tax viewpoint, an executive pension plan can be even more attractive. That is because the limits on the combined contributions to the executive plan are significantly greater than a personal pension plan.
For example, a male aged 50 – potential combined contributions of up to 216% of their salary can be made into an executive plan. The maximum contribution under a standard, personal pension plan would be 30% of their gross salary. This is particularly interesting in a case where the company would not have had the cash reserves in the past to contribute to a pension for their director but now finds itself with significant cash reserves allowing it to make up for those years when contributions were not made.
Also, while there is an earnings cap of €115,000 for personal contributions, there is no cap for employer pension contributions, which allow the use of company monies to fund for a maximum projected pension of two thirds of your final salary and a maximum retirement fund of €2m.
2) Access your pension earlier
There is the potential to get access to your pension pot at the age of 50 rather than 60.
3) Tax saving for the company
Employer contributions effectively receive 52% tax relief as opposed to up to 40% on personal pension plan alternatives.
You can set up an executive pension for any senior executive or director employed by the company who is drawing a salary, including your spouse.
We can help
Our accountants can discuss your unique circumstances and help you decide the best way forward. For a free initial consultation call us today on 1800 98 76 09 or make an enquiry via our online contact form
Date published 26 May 2021 | Last updated 26 May 2021This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.