Executive Pensions

How much can I contribute to my pension through my limited company?

---

When it comes to the company making the contribution on your behalf, as is the case with an Executive Pension, then there are a range of factors in determining how much can be contributed.

• Age
• Gender
• Marital Status
• Chosen Retirement Age
• Salary
• Previous Pensions
• Years of service with the current employer

I have seen a few calculators online but can someone direct me to a good article that lays out the factors and calculation in detail? Thanks.

This is some info on this on Revenue for those interested.

I can't post links but if you google - revenue.ie tax and duty manual pensions - see chapter 5.

For the calculations:

If you have 10 years of service, the rules allow you to fund for a pension of 2/3rds of your salary in retirement under an executive pension.

What about directors with less than 10 years of service?

I don't mean to hijack someone else's thread but I'm also curious to SMBIRE's final question above.

Last year I set up a company to receive payment for contract work and the reality is, I don't need 50% of the money I'm getting paid and would prefer to channel that into a pension.
Is an Executive Pension an option for me or am I stuck with the same % of salary rules as standard contributions (i.e. 25% of my salary (I'm in my 40's) which means, by example
100k income
50k salary drawn down
12.5k pension contribution (25% of 50k)

Again, I can open a new thread if this has derailed the topic

SMBIRE said:

How much can I contribute to my pension through my limited company?

---

When it comes to the company making the contribution on your behalf, as is the case with an Executive Pension, then there are a range of factors in determining how much can be contributed.

• Age
• Gender
• Marital Status
• Chosen Retirement Age
• Salary
• Previous Pensions
• Years of service with the current employer

I have seen a few calculators online but can someone direct me to a good article that lays out the factors and calculation in detail? Thanks.

Click to expand...

Obviously a lot of the factors you can’t change (like your date of birth)

things to focus on

Service

The biggest mistake we see all the time is not putting your spouse in payroll when they are a director of the company.
Service starts when salary starts not when made a director.

Salary
Three consecutive payslips are required to establish salary (these can be weekly)

Have a mess around with an online calculator with different salaries and see the impact on allowable contributions


also put the salary into an income tax calculator to model the effect on your take home pay



normal retirement date should be 60 to get you to the biggest fund as quickly as possible

Don't use an Insurance Company

You simply don't know what you are paying and have more restricted investment options


Standard Fund Threshold

Watch the €2m cap as benefits on the other side are taxed at an effective marginal rate of up to 71%

We have lots of clients in the mid 40s at or over the €2m cap (first world problems)


The best approach for many people

We frequently see directors (and senior employees) with high salaries paying high rates of tax and with savings rotting in the bank.

The best approach is to establish a reference salary (this can be achieve with a bonus payment) and then fund against that at the max possible, reduce salary to save tax and live on the post tax savings in the bank. Get to the €2m cap as quickly as possible (because they keep changing the rules) and get the money out and over the wall.....

Growth in an ARF for example is not subject to excess tax so the rationale course of action is to retire out the pension at 50 and then max out the growth in the ARF.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

Dave Byrne said:

I don't mean to hijack someone else's thread but I'm also curious to SMBIRE's final question above.

Last year I set up a company to receive payment for contract work and the reality is, I don't need 50% of the money I'm getting paid and would prefer to channel that into a pension.
Is an Executive Pension an option for me or am I stuck with the same % of salary rules as standard contributions (i.e. 25% of my salary (I'm in my 40's) which means, by example
100k income
50k salary drawn down
12.5k pension contribution (25% of 50k)

Again, I can open a new thread if this has derailed the topic

Click to expand...

Yes this is exactly the solution you need we do this all the time for contract work

Sorry, the solution is an executive pension (to exceed the standard 25% funding limit) or the solution is the standard funding model, in this case 12.5k pa?

Dave Byrne said:

Sorry, the solution is an executive pension (to exceed the standard 25% funding limit) or the solution is the standard funding model, in this case 12.5k pa?

Click to expand...

Sorry, yes you should set up an exec pension

Marc said:

The best approach is to establish a reference salary (this can be achieve with a bonus payment) and then fund against that at the max possible, reduce salary to save tax and live on the post tax savings in the bank. Get to the €2m cap as quickly as possible (because they keep changing the rules) and get the money out and over the wall......

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

Click to expand...

This is interesting, how many years would the base salary need to be in place for?