Q. What is an Executive Pension (EP)?A. It is a tax-exempt Revenue approved Pension vehicle that allows business owners and key employees to get the most value from their pension contributions. It allows a business owner to transfer surplus profits from the company to his/her EP plan with no liability to Benefit-in-Kind Why? It is a very flexible means of building a retirement pot suitable for a business owner or senior employees.
- Business owner who may want to ‘catch’ up on his Pension contributions.
- Back-funding is a flexible feature which allows the EP owner to potentially back-fund for years where he was in salaried service but not pensioned.
- If the company makes the payments to the business owners EP plan, contributions are paid gross with no BIK liability
- The Company gets corporation tax relief on the employer contributions in the year made
Process – How to qualify for an Executive Pension
|Limited company status||Employer can make generous contributions -which are not restricted by age related limits but are linked to salary, age, and years to retirement|
|Business owner or key employee must have Schedule E Income||40% tax relief on any personal contributions|
|Availability of excess company profits||No Personal tax liability for the EP owner, any investment growth is tax free|
|Must be set-up in a trust||Flexible can decide each year on contribution level and can stop and re-start as suits employer|
EP- Maximum annual contributions levels
Example- Maximum EP Contribution Levels
- Max. Contribution limit = 2/3 Salary *Capitalisation factor less Retained Pension / yrs. to retire
- Cap. Factor is higher for a male with a spouse or civil partner.
- An Earnings cap of €115,000 applies to contributions.
Advantages of an EP for Business Owner ‘Versus’ Sole Trader Personal Pension
Taxation Pensions – @ Retirement
- The maximum individual pension benefit in Ireland is €2 million known as the Standard Fund Threshold
- Individual with a retirement pot of €2 million, would receive a tax-free lump sum of €440k on €500k of benefits drawdown.
- An individual who accumulates Pension Benefits greater €2 million will pay tax of 40% on all these pensions assets more than €2 million