An Executive Pension is a pension plan that is set up by a limited company/employer. It is designed to help Company Directors and Executives save for retirement and grow their wealth substantially. It allows you to transfer profits from the company’s bank account into the pension thereby turning company profits into personal wealth.
It was discontinued last summer. This came about because in its previous format it was not in compliance with new European legislation called IORPS II which was recently transposed into Irish law.
The product has been re-introduced this week by a number of providers. This new iteration of the product will not look any different to you as a member but rather than being a one-member arrangement it will now be based on a master trust structure. This means that it will conform to the requirements of IORPS II.
Why is it such a good tax planning tool?
Current pension legislation allows a company to make very substantial contributions to an Executive pension established for your benefit, without you being subject to benefit in kind (BIK) taxation. These contributions are a fully allowable expense against corporation tax so they are a great tax planning opportunity. The company can also fund for the years you have missed and there is no PRSI liability for the company as a result of remunerating you this way.
The advantages of an Executive Pension are as follows
● The contributions made by your company are deductible against trading profits in the accounting period in which the contribution is made, thus reducing your corporation tax bill.
● Even though they are for your benefit, contributions made by your company to your Executive pension are not treated as a benefit in kind.
● Your company can back-fund for the years you have missed.
● There is no PRSI or USC liability for the company as a result of remunerating you this way.
● Your funds grow tax free within the pension
This offers a huge advantage over Personal Pensions as these plans are limited to age-related limits and an earnings cap of €115,000, whereas Executive Pensions have higher limits.
If you want to reduce your corporation tax bill and turn company funds into personal wealth we can help.
