Following a notification issued by The Pensions Authority on 4th July 2022, there are currently no pension providers offering access to executive pensions or one member arrangements. The industry is currently working on acceptable solutions which are expected in October/November 2022. In the meantime, there are other possible options for retirement planning. Please talk to one of our consultants today.
Any occupational pension scheme created for just one member is considered an executive pension. They can also be called directors pensions and are typically arranged for company directors or business owners or senior members of staff.
Both employer and employee can make contributions to an executive pension. Whereas an employee’s contributions are limited to a percentage of their salary based on their age and subject to a salary cap of €115,000, the employer has greater flexibility in terms of their contributions. Under Revenue rules, an employer can make significant contributions to facilitate the funding of an employee’s pension to the maximum permitted in what sometimes could be a very short timeframe. This flexibility provides an opportunity for company owners and directors approaching retirement, who may not have properly funded their pension in the past, to ensure adequate provision for their lifestyle post retirement.
As an occupational pension, the employer must sponsor the scheme which is set up under trust. Typically, the employer will act as trustee for the scheme. However, as trustee responsibilities have increased and evolved in recent years, more and more employers are opting to appoint an impartial trustee to assume these legal duties.
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What is an Executive Pension?
An executive pension is a form of occupational pension scheme typically arranged by an employer for one employee only.
Who is an Executive Pension suitable for?
An executive pension is typically for a director or senior employee of a company, who is in receipt of Schedule E remuneration for income tax purposes. The employer must make some contribution to the scheme. A contribution could consist of a direct contribution, paying the costs of the scheme, or funding risk benefits for the employee.
How much can I contribute to my Executive Pension?
Tax relief on personal contributions is restricted. The below table sets out the maximum contributions you can make and receive tax relief at your marginal rate. Please note that there is also a salary cap of €115,000, so if your salary is in excess of this figure, your maximum contribution will the age-related percentage of this maximum figure.
|Your age||% net relevant earnings|
|60 or over||40%|
How much can my Company or Employer contribute?
The maximum contributions that can be paid to your scheme by you and/or your employer will depend on your personal circumstances, including your number of years’ service with the Company and salary. Revenue have maximum funding limits which can facilitate significant employer contributions to allow a Company to ensure that an employee’s pension is properly funded at retirement. Please always remember that you do not want to exceed the maximum allowable fund threshold, which is currently €2m.
What can I invest in?
Your pension can be invested in a wide range of assets such as equities, bonds, property, cash and investment funds.
Please note that the value of your executive pension can increase or decrease, depending on the performance of these funds and you may get back less than you put in.
Do I have to take risk?
All investments carry an element of risk, even those that are supposedly capital secure. To generate a return in excess of inflation and product charges, you will have to accept risk. The level of risk associated with your executive pension will depend on the type of investment strategy you choose.
Your MoneyCoach advisor will help you establish your retirement goals and how much income you will want when you stop work. We will then be able to identify how much risk you will need to take to achieve your goals. If this level of risk is outside your own tolerance of risk, we will adjust either the level of contributions you require to achieve your goals or adjust the level of income you can reasonably expect to have in retirement.
Can I transfer my Executive Pension?
You can opt to transfer your executive pension to the following:
An Occupational Pension Scheme
A PRSA (subject to certain restrictions)
A Retirement Bond
Retirement benefits established outside of the State to the extent that transfers are permitted to that Scheme.
Depending on the structure of your executive pension and the timing of your intended transfer, your fund may be subject to early encashment penalties. These penalties will be detailed in your pension documents. Please contact your MoneyCoach advisor to see what charges might apply to your pension.
When can I access my benefits?
You can normally start taking your benefits from age 60 (and up to age 70).
What are my options at retirement?
At retirement, you are entitled to the take benefits in one of two ways:
A once-off lump sum of up to 150% of your final salary (based on your length of service) and the balance of the fund must be used to purchase an annuity, which is a pension for life (subject to income tax)
A lump sum of up to 25% of the value of the fund with the balance used to either;
Buy an annuity (pension for life and subject to income tax)
Invest in an Approved Retirement Fund (ARF) which is an ongoing investment. You must take an annual income from your ARF equal to 4% of the value of the fund and this income will be liable to income tax.
Please note that the first €200,000 of all lump sums you are entitled to at retirement is tax free and the balance up to €500,000 is taxed at 20%.