At its’ core, a Director’s Pension Plan is simply a one-member occupational pension scheme, with many similarities to a larger group pension scheme set up for employees.
The same rules apply in terms of the level of contributions allowable, the tax-relief available, and the eventual pension benefit entitlements at retirement.
That being said, there are obvious differences as to how Directors’ Pension Plans and large Employee Pension schemes operate in practice.
An occupational pension allows the company to make much larger contributions when compared to personal pension plans. Depending on a client’s circumstances, it can be possible for the company to contribute multiples of salary into an occupational pension, far more than the contribution levels allowable for personal pension plans.
It would be highly unusual for a company to offer pension contributions at these higher levels to employees who are members of the company’s employee group pension scheme.
However, we often see company directors taking advantage of this flexibility and making sizeable
contributions to their Director’s Pension Plans, particularly where they have not previously funded into other pension plans to any significant extent.
Another difference would be the typical approach to investing the pension contributions. Trustees of large employee pension schemes are primarily concerned with offering a range of easy-to-understand risk-rated portfolios that can be matched to an employee’s tolerance for investment risk.
Company Directors are also often more experienced investors and, generally speaking, take an active interest in a range of investment options available. For example, they may have a preference for specific assets, or a desire to invest their pension in sustainable investment portfolio.
So, there are some practical differences between Directors’ Pensions and other occupational pension schemes.
These obvious differences, and previous experience of pensions legislation, meant that the recent introduction of new pension legislation named the IORP II Directive to all occupational pensions, including Directors’ Pension plans, took the pensions industry by surprise.
IORP II aims to improve the governance and communication standards of occupational pension schemes, but its’ unexpected application to Directors’ pension plans gave rise to the situation where these pension plans were withdrawn from the market in July 2022.
This situation is pretty unprecedented, but thankfully it appears likely that a solution will become available during November 2022. Master Trusts are large, multi-employer pension schemes and for many employers are the obvious option to meet the IORP II requirements in providing occupational pensions for their employees.
It is likely that a number of pension companies will shortly have Master Trust structures available for Directors’ Pension plans also.
So, after months of uncertainty for Directors seeking to fund for their retirement, there should soon be some welcome clarity as to how best to do so.
If you are interested in discussion how best to fund into a Director’s Pension plan and how it fits in to your unique retirement plans, we are here to help.
Contact Harvest on 01 237 5500 or email justask@harvestfinancial.ie and we will be happy to assist.
