In terms of making pension provision, sole traders are generally restricted to personal pension plans and PRSAs. There are strict limits on how much they can contribute to their pension and as to how they can take benefits at retirement.

 

Company owners may, however, have much greater pension flexibility. If they take a salary from the company, they will more than likely have the option of setting up what is called an executive pension plan. This is usually a one-person scheme that is set up under the company name with the company owner as both member and trustee. The premiums can be paid from the business bank account into the pension.

 

Contributions

One major benefit of an executive pension is the increased funding limit. Contributions are not necessarily limited to a set percentage of annual income but in fact take into account current pension provision and years spent as company owner/director as well as current salary. More often than not this allows for a much greater amount to be contributed to the pension so if the company is profitable, a significant pension fund can be built up over time.

 

Retirement Age

Another benefit of an executive pension is the Normal Retirement Age (NRA). For personal pensions, this is set at a minimum 60 but for a company pension it can be as early as 50 if taking early retirement.

 

Options at Retirement

When the company owner does decide to retire they have more flexibility in terms of how they can take benefits. The main advantage is with the lump sum. For personal pensions this is set at 25% of the fund but for an executive pension it can also be based on final salary and years of service which may equate to a higher tax-free lump sum.

 

Protection from Creditors

Any money held in the executive pension is also protected from creditors. In the unfortunate event of the business being unable to pay its debts, any creditors will not be able to lay claim to any funds paid by the company to the pension scheme.

 

If you would like more information on executive pension schemes or pensions in general, you may contact me on 087 9308181 or gerard@proactivefinance.ie.

 

Gerard Ward

15th February 2018