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Directors Pension Planning

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Understanding Directors Pensions

If you’re a company owner, director or senior executive of a company, you undoubtedly have an extremely demanding work life. You work hard today to ensure you can enjoy tomorrow and you want to have the financial provisions in place to do just that. An important aspect of planning for the future can be to identify funds in your business that may be surplus to what you currently need to finance your business today and to move these funds out of the business. In many cases, it is more tax-efficient for business owners to put a portion of their company profits into a pension than to give themselves a pay rise. One way of achieving this is to set up a company pension, also known as an Executive Pension Plan. Arranging for your company to make contributions to an Executive Pension in your name can allow you to move cash from the business into what is effectively a pot of money held under trust for you.

An Executive Pension gives you:

  1. Contribution Options The flexibility at the outset to choose the amount you and your company contribute.
  2. Investment Options Which allows you to tailor your investments to suit your individual attitude to risk.
  3. Retirement Options Options that suit your circumstances When you retire, there is flexibility as to how the benefits can be taken. This will depend on rules that are in place at the time you take your retirement.

Benefits of Directors Pensions

1. Turn Company Profits into Personal Wealth

Arranging for your company to make contributions to an Executive Pension in your name can allow you to move cash from the business into what is effectively a pot of money held under trust for you.

2. Retain & Reward Key Staff

We can also construct plans for key employees within your business. An executive pension is an effective way to encourage key staff members to consider their long term future in your company.

3. Tax Efficient

Contributions made by the company to the plan can normally be fully offset against Corporation Tax

How much will it cost to provide a decent income in retirement?

The answer will depend on a number of factors including:

  • Your age now and the age at which you think you’ll retire
  • The amount of income you think you’ll need when you retire
  • The investment returns which your fund achieves
  • The interest rates which apply when you retire, which will determine the rate at which you can purchase an annuity, i.e. a regular income.

Depending on your company service the maximum benefits that may normally be provided under Revenue rules is a pension of two-thirds of your final salary with a matching pension for your spouse or civil partner, payable on your death in retirement. Significantly, under current legislation, unlike salary increases, bonuses, or benefits such as company cars, your company’s contributions to an Executive Pension are not treated as your income and are therefore not taxed.

 

Flexibility to tailor payments to suit you

The Executive Pension allows you to make your contributions how and when you want to. You can pay by direct debit – monthly, quarterly, half-yearly or yearly. Single premium payments can also be made on an annual basis. Revenue rules apply.

 

What happens at retirement?

When you retire, you can use your retirement fund in either of two ways.

Taking your retirement benefits

You can choose to take your retirement benefits under your Executive Pension at any age between 60 and 70, which is the Normal Retirement Age under an Executive Pension. It is possible to take benefits at your chosen retirement age (between 60 and 70) and to continue working in the same company. It is also possible to change the chosen retirement age at any point in the future.

Early Retirement

You may be able to take your benefits from age 50 under certain circumstances. In the event of ill health, benefits can become payable immediately (regardless of age) but this is subject to completion of a medical to make sure you qualify under Revenue rules. If you retire early you will need to surrender (sell) your shareholding and sever all links with the business.

Retirement Options that suit your circumstances

Pensions are an essential part of your financial plans, both the tax relief and the long-term nature of a pension makes it one of the best retirement planning and wealth extraction tools available for business owners today. Get in touch for expert advice on how to manage yours.

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Above & Beyond Financial Services Since 2005. The rationale of establishing Blackhall Financial Services was to provide a separate identity to the Accountancy Firm and to offer a wider range of financial products and services to clients with a dedicated professional team. 

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