Proprietary director and cutting pension tax relief to 20%

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sjapok

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I have a question about the potential removal of the full 40% tax relief on pension contributions. I'm a propietary director of a company and I'm planning to take out a self-invested pension. I'm also planning to contribute about 60% of my gross salary as a pension contribution this year.

Is my company allowed to contribute the entire amount for me (I'm 32)? Does this mean that even if they reduce the tax relief on pension contributions that this won't affect me (as it's my employer making all the contributions)?

Example:
Company profit (pre-salary): €80k
My salary: €50k
Company pension contribution on my behalf: €30k

Is my company allowed to contribute the entire €30k? There would be no corporation tax implications etc.?
 
sjapok said:
I have a question about the potential removal of the full 40% tax relief on pension contributions. I'm a propietary director of a company and I'm planning to take out a self-invested pension. I'm also planning to contribute about 60% of my gross salary as a pension contribution this year.

Is my company allowed to contribute the entire amount for me (I'm 32)? Does this mean that even if they reduce the tax relief on pension contributions that this won't affect me (as it's my employer making all the contributions)?

Example:
Company profit (pre-salary): €80k
My salary: €50k
Company pension contribution on my behalf: €30k

Is my company allowed to contribute the entire €30k? There would be no corporation tax implications etc.?
Click to expand...

Remember that the original thread which prompted this query was about a report by the ESRI where they suggested a cut to the rate of tax relief available on pension contributions. I just can't see this happening as it conflicts with the Government's own Pensions Roadmap 2018 - 2023 which they've already published. Personally I think the ESRI's resources might be better spent doing reports on the cost / benefit of some or all of the proposals actually contained in the Government's Pensions Roadmap rather than going off on another tangent.

But in the unlikely event that the Government did veer away from their own current plans and decide to offer only standard-rate tax relief on pension contributions at some point in the future, my guess - and it's only a guess - is that company pension contributions as you describe above would be left unaffected. Remember that, although the personal contributions by Public Servants towards their own pensions has increased in recent years, it's still the State that funds the majority of the cost of such pensions. So any change to the taxation of employer contributions would have to involve a calculation to establish the value of the State's contributions to Public Service pensions and change it too. As Government Ministers qualify for lovely State pensions, I can't see them voting for this. Turkeys voting for Christmas.
 
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Putting any future changes in the pension tax relief aside, at present would my company be allowed to contribute the full €30k in the above example with no "personal" pension contributions from my gross salary?
 
I can read your query in one of two ways.

(1) If you're asking if it's permissible for your company to make all of the pension contributions, with no requirement for a personal contribution from you, then yes that's permissible. In fact it's common practice for a proprietary company director to set up a pension scheme that it is entirely funded by company contributions.

(2) If you're asking if a €30,000 annual contribution is permissible on a €50,000 salary, that's a calculation that involves more variables than what you've posted. Whoever is giving you advice on setting up the pension scheme should be able to tell you the maximum permissible level of contribution easily, once they have all your details.
 
There is a Revenue formula used in calculating the maximum pension contribution that can be made to a company scheme. It is based on age, existing benefits, years service and marital status. You should be close enough on those figures and that age, although you may have to make a "special contribution" (this is something your advisor can explain to you).

Very good point on re the tax relief. All the talk has been about cutting the tax relief on personal contributions. Yet companies can make much more generous contributions and claim tax relief on the contributions. There is no reason why a company owner should be making personal contributions when he can get his company to do it (if he makes personal contributions, he will have to pay PRSI and USC on the premium amount). Liam raises a good point, if the politicians make changes to employer contributions, something would have to be done to their pensions as it would be punishing people for working in the private sector.


Steven
www.bluewaterfp.ie
 
Thanks for the info. I have one last question on the retirement age within a self-invested pension fund. If I set one up, then my understanding is that I could elect to retire at age 50? Is it possible the Revenue could increase this minimum age after I have made several contributions?

The reason I ask is because in this Irish Times article -->
it states
"You may not be able to retire early under auto-enrolment. The Government’s Roadmap suggests that a person would not be paid their auto-enrolment pension until their State pension becomes payable. The State pension is currently paid from the age of 66 — and that age is set to rise to 67 from 2021, and to 68 from 2028. So you could have to wait until the age of 68 to draw down your pension under the auto-enrolment scheme. “That’s very different to current workplace pensions, where you can usually draw down your pension from the age of 50,” said Peter Griffin of Allied Pension Trustees."

So it is possible that in 2022 the rules could change such that I could only draw down my pension benefits from 68?
 
Two things:
  1. As a proprietary director, you can only draw down your pension benefits before age 60 if you leave your company and sell you shareholding. The age 50 rule is really only for employees.
  2. That article applies to the auto-enrollment scheme that the government proposed. They have not said if they would apply it to ALL pensions.
Steven
www.bluewaterfp.ie
 
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