Retirement Planning for Company Owners/Directors

Retirement Planning for Company Owners/Directors

It’s coming towards the end of the calendar year and for lots of businesses, the end of their financial year also. If you are a company owner or director, you have substantial scope to extract cash reserves from your company and turn these reserves into personal wealth via retirement planning.. specifically, Executive Retirement Planning.

What is an Executive Retirement Plan?

An Executive Retirement Plan is a pension set up by your limited company for the benefit of the Directors and/or Senior Employees of the company. The retirement plan is set up under a trust and typically, the pension provider will also provide the trustee removing this burden from the company. With an Executive Retirement Plan, the employer is required to make meaningful contributions into the plan for the member and the employee can also make contributions if they wish. At retirement, the ultimate value of your retirement plan will depend on the contributions that have been made over the years and the tax free investment returns the funds have achieved since you commenced the plan.

What are the benefit of an Executive Pension Plan:

  • The limits on contributions to an Executive Retirement Plan are significantly greater than a Personal Pension. For example, if you are only commencing your retirement funding now but you may have your company established with a number of years, the company will likely be able to contribute a multiple of your salary into your retirement plan in order to buy back the service you missed. Where you are the owner of the business, this funding ability can be utilised as a tax-efficient method of taking cash from the business.
  • All contributions into your Executive Retirement Plan qualify for full corporation tax relief like all business expenses and should you decide to make a personal contribution, this contribution will qualify for 40% income tax relief.
  • Depending on the circumstances, members of Executive Retirement Plans can claim the benefits from your Executive Retirement Plan from as early as age 50 onwards.  

 How much can I contribute to my Pension through my Limited company?

As an individual making personal contributions, you are limited to the normal revenue rules which relate to your age and appropriate % of your salary e.g. if you are in your 40’s, it is 25% of your salary. When it comes to the company making contribution on your behalf, as is the case with an Executive Retirement Plans, then there are a range of factors in determining how much can be contributed. These include;

  • Age
  • Gender
  • Marital Status
  • Chosen Retirement Age
  • Salary
  • Previous Pensions
  • Years of service with the current employer

At what stage can I draw down my pension

You are eligible to claim the benefits of your Executive Retirement Plan from the age of 50. To do this, you must no longer be an employee of the company. So, for example, you can fund your pension today, take up a new role and subsequently begin to draw on your pension benefits from the age of 50 even though you are still working. The obvious caveat here is that you should only ever draw on your pension when you absolutely need to as to do so will simply reduce the value of your future benefit when the time comes that you don’t have any other source of income.

If you spouse is employed by the business, can the company set up a pension for them?

Absolutely. You can set up a pension for anyone employed by the company who is being paid a salary which can be an extremely tax-efficient method of retirement funding.

The Benefits at Retirement:

At your retirement age, you can take a tax-free lump sum of either:

  • 25% of your fund, or,
  • based on salary and service, to a maximum of 150% of your final salary.

The maximum tax-free lump sum you can take is €200,000. The remainder of your fund can then be invested in an Annuity or Approved Retirement Fund to provide you with an income during retirement.

Retirement planning can be a complex area of your financial planning but if you have any questions, don’t hesitate to contact Eolas Money today to discuss. Call us in the office on 052 6129696 or pop us an email to