The Tax Efficiencies of Executive Pension Funding

Company Directors often focus purely on the assets within their pension fund; and the investment performance of these assets. However, the tax treatment of a company pension structure is as important as the investment performance, if not more so.

There are many tax benefits to a Company pension structure, some of which clients may not be aware of:

  • PRSI: There is no PRSI on any Employer pension contributions to a company pension plan.
  • USC: There is no USC on any Employer pension contributions to a company pension plan.
  • While there is an earnings cap of €115,000 for personal contributions, there is no cap for Employer pension contributions.
  • Corporation Tax Relief: The company can claim corporation tax relief on Employer pension contributions, within Revenue limits.
  • Tax Free Growth: There is no tax on income or growth within the pension plan in the Accumulation stage.
  • Death Benefit: Subject to a maximum of 4 x salary the full value of your pension will be payable to your estate.
  • Lump Sum Entitlement: There is a generous lump sum available at retirement, the first €200,000 of which is tax-free.
  • Tax Free Growth Post-Retirement: If you transfer the balance of the fund after the lump sum to an Approved Retirement Fund your pension will continue to benefit from tax-free growth during your retirement.
  • Personal Tax Relief: Marginal rate tax relief available on personal pension contributions subject to revenue limits. The impact of this can be illustrated by the table below.

How do you Turn €6,000 into €10,000?

40% Tax Relief

As well as the pre-retirement tax efficiencies associated with a company pension plan there are retirement planning requirements that incorporate the tax treatment of lump sums when you come to take your retirement benefits, and the tax treatment of your income while in retirement.

If you want to discuss your own retirement planning needs contact Harvest on 01 2375500 or email justask@harvestfinancial.ie – we continue to provide our services to new and existing clients remotely during the Covid 19 outbreak.

Your Financial Planning Deadlines and Covid 19

The marketing material is not intended to provide advice and is provided for general information purposes only.

The particular tax treatment contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at March 2020. Please note that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should take such independent tax advice as you deem appropriate.