Pension strategy

M

MeathCommute

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I'm 51. I have a reserved pension coming to me at 60 from 31 years permanent employment with a major bank. The pension is around 30k a year. I am now contracting back to the same bank, and I have set up a limited company. I am making circa 110k a year from my limited company. This is the first year of operation. I pay PAYE/PRSI/USC on the drawings from the business. I find the tax a real killer. I currently have 40k gross saved in the business account. Would it be possible for me to take that gross money, and put it into a pension pot, and avail of that money tax free at say 55 or 56? I don't want to add it to the existing pension coming at 60. I just want to have money set aside for when I decide to retire. I would like the option to retire at 56. I will probably get around 3 more years contracting where I am. I am aware that I may not be able to take it all tax free, but would be nice to see what I could possibly do. Thanks
 
Self employed can only take pension benefits from age 60, except if retiring on health grounds.

But it's worth exploring your overall pension position to see what you can work out.

Be careful leaving money sitting in the company unless it's carefully planned. You'll normally end up paying corporation tax.
 
You should be able to do the following:

> Transfer the majority of company funds into an executive pension fund.
> Take 25% Tax free lump sum at 50 if you sell the shares in the company, from age 60 if not.
> You seem to meet the criteria for an ARF, so you could put the balance into an approved retirement fund and draw down on it when needed.
> If you are over 65 and married you don't pay any tax on the first €38,000 if jointly assessed, so you could top up the €30k from BOI every year with €8k from your ARF and not pay any tax

In the above scenario you would avoid paying any tax and could also benefit from an increase in fund value.
 
You appear to have a defined benefit pension from the bank which is guaranteed. If you transfer the benefits out of the DB scheme, it is probable that you will not replicate the same level of benefits. But if you leave the benefits with the bank, you will have to wait until you are 60 to access the benefits. If you transfer them into your own name, you can access them early.

On your new company, you have loads of options. Take out the salary that you need and make company contributions to a new pension scheme set up under your new company. There are Revenue rules on the amount you can contribute but you will be able to put away a big chunk. Don't bother making personal contributions as they are liable to USC & PRSI, just reduce your salary and pay the pension contributions from your company and include it as a business expense.

As the owner of the new executive pension, you must sell your shares in the company and retire if you want to access this pot before age 60.


Steven
www.bluewaterfp.ie
 
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