An Executive Pension is a pension set up by employers for executives or key
employees of the company. The pension is set up under a trust and typically the
employer will act as the trustee.
With an Executive Pension both employees and employers can make contributions.
The ultimate value of your pension plan will depend on the contributions you and
your employer have made over the years and the investment return the funds have
achieved in your Executive Pension.
Not only does an Executive Pension provide you with a long-term plan for your
retirement, it is also a tax efficient way for you to set aside money for when you
retire as well as being a tax efficient way for your employer to provide you with
employee benefits. In addition to employer contributions you may be able to
contribute up to 40% of you income (depending on your age) into your Executive
Pension and claim tax relief.
There is a restriction on the maximum level of pension an Executive Plan can
provide for a member on retirement. This restriction has a knock-on effect on the
maximum level of tax-deductible contributions your company can make to your
The maximum ordinary annual contribution which the Revenue will allow as a
deduction for Corporation Tax in the year of payment depends on a number of
- • The level of Schedule E remuneration you take and have taken from your
• How long you have been drawing Schedule E remuneration from your
• The level of retirement funds you have already accumulated or taken.
• The Normal Retirement Age (NRA) at which you expect to take your retirement
benefits. (This can be between your 60th and 70th birthday.)
• The multiplier factor Revenue allows for converting retirement fund to pension
at the assumed Normal Retirement Age.
Your company can also make special or once-off contributions, but tax relief on
these may be required by Revenue to be spread over a period of years (up to a
maximum of five years).
Remember: It is not generally advisable to accumulate retirement benefits in
excess of a limit referred to as the Standard Fund Threshold, which is currently €2
million. Benefits accumulated in excess of this limit are subject to an additional
penal tax charge at retirement.
What are the tax benefits of an Executive Pension?
An Executive Pension is an extremely tax efficient way to provide for your future
retirement for a number of reasons:
• Your company’s contributions to the plan are deductible for Corporation Tax as
a business expense. Corporation Tax relief on large once-off contributions may
be required by Revenue to be spread over a number of years (max. five years).
• Your company’s contributions to the plan are not subject to a benefit-in-kind
charge in your hands for income tax purposes. This means you will not have to
pay income tax, PRSI or the Universal Social Charge (USC) on your company’s
contributions to your plan.
• Your plan enjoys tax free investment growth, which means that any growth
achieved on your investment is yours to enjoy in retirement. However for 2014,
a pension levy of 0.75% of the value of the plan’s assets at June 30th 2014 and
a levy of 0.15% of the plan’s assets at June 30th 2015 applies.
• At retirement you can take part of the accumulated fund as a lump sum which
may be partially or fully tax free, depending on the value of your fund at that
time and how many other lump sums you have taken from other pension
arrangements since December 7th 2005.
You may be relying on your Executive Pension to provide an important source of
income in retirement, so it’s vital that you invest it wisely.
There are many options available to you, from low and high risk funds investing in
particular types of assets to managed or mixed funds investing in a spread of assets
and self-directed funds where you choose the funds or assets in which you invest.
Your Executive Pension should offer you a diversified range of investment options
that can meet your changing circumstances over time. Any choice you make
should be based on the level of investment risk you are comfortable with and
should take into account your financial circumstances and goals. It is important
to understand that the value of your Executive Pension can fall as well as rise,
depending on which funds or assets you invest in.
You can access your Executive Pension at Normal Retirement Age, which can be
set at any age between 60 and 70. You can draw on the plan and continue to work
at the company if you choose. You can also access your Executive Pension on ill
health retirement at any age.
In addition, from age 50 onwards, you can access your Executive Pension on early
retirement from your company. However, you should note that Revenue usually
require directors who own and control more than 20% of the voting rights in a
company to dispose of their shares in the company and to cease all involvement
with the company in order to draw on their Executive Pension benefits before
Normal Retirement Age.
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