As an Employee your pension is an essential part of your financial planning. The tax relief and long-term nature of a pension make it an excellent retirement planning tool. An Executive Pension Plan provides you with a plan for retirement and can be a tax efficient way for your employer to provide you with employment benefits.
It is never too late to benefit
Executive Pension Plans provide generous tax incentives. Depending on your age, you may be able to contribute up to 40% of your income each year into an Executive Pension Plan and claim full tax relief.
Planning for your retirement
When thinking about the type of pension fund you’d like to have, a big contributing factor will be the age at which you want to retire. Another factor worth noting is the age at which you may qualify for the State Pension which may have changed by the time you reach your normal retirement age. The qualifying age to receive the State Pension (Contributory) is currently age 66.
Investing your contributions
Jameson Financial provides a wide choice of Investment Funds, with a wide range of investment categories and diversification across geographic regions and asset classes. Risk profile assessments are carried out for all clients and accordingly employees can invest in funds categorised from low risk to very high. These funds are managed by various teams of global and national fund managers and allow you and your trustee build a bespoke pension investment portfolio around your individual needs.
A specially selected Default Investment Strategy within our Executive Retirement Plans is designed to match your changing investment needs by automatically selecting an appropriate level of risk depending on your retirement year – a higher level of risk when you are far from retirement and want your fund to potentially grow, and a lower level of risk as you near retirement and want to safeguard your fund against strong short term market fluctuations. Essentially, the Default Investment Strategy recognises that your investment needs will be different depending on your term to retirement.
Tax relief for the employer contributions made into an Executive Pension Plan can usually be offset against Corporation Tax as an allowable business expense (subject to Revenue limits). Jameson Financial’s Executive Retirement Plans offer considerable flexibility in relation to the timing of an employer’s contributions to the plan. The employer can choose to make regular contributions to the plan and /or lump sum payments to tie in with the employer’s profitability, subject to Revenue terms and conditions.
You can also benefit from tax relief on any personal contributions you make. Tax relief is normally available at your marginal rate of tax up to a maximum of 40% of earnings each year, depending on your age. This considerably reduces the net cost of your pension contributions.
Attractive tax-free investment growth
Under current Revenue rules no tax is payable on any growth during the term of your pension, and on retirement some of your fund may be taken as a tax-free retirement lump sum.
You can retire with a lump sum
You can take 25% of the fund as a lump sum at retirement or in some cases 1.5 times your final salary. Employees can only avail of the 1.5 times salary option if they have 20 years service at normal retirement age with the employer and intend using the balance of their retirement fund to purchase an annuity (i.e. a pension for life). A maximum of €200,000 can be taken tax free.
Ceiling on maximum pension fund
There is a limit on the maximum fund that can be built up on retirement. This is currently €2,000,000. This figure includes all of your pension funds, including the capital value of any retirement benefits drawn down since 7th December 2005. Where the relevant limit is exceeded, the excess in your pension funds at retirement will be liable to a once off Income Tax charge.
Options at retirement
Option 1 – Pension
You can buy a pension (also known as an annuity). This will provide you with a regular secure income, which will be paid for the rest of your life. Income from a pension is liable to income tax under the PAYE system. You may purchase your pension from any pension company. Therefore, you can maximise your retirement income by choosing the company
that is offering the best pension rates when you retire. You can choose a pension that is payable for your lifetime only or one that continues to be paid to your spouse on your death. You can also choose a level pension or one that will increase every year.
Option 2 – Invest in an Approved Retirement Fund (ARF)
You can choose to invest your fund in an ARF. An ARF allows you to invest your retirement fund in a range of investments managed by approved providers As you retain ownership of your retirement fund with an ARF, you can make withdrawals as you wish subject to tax. If you die, your ARF becomes part of your estate and can be left to your spouse or children.