Retirement Planning for Company Directors in 2025
In our experience, Company Directors will often prioritise the growth of their business in their earlier years of work and only later focus on retirement planning when their business is established and has excess profits above the day-to-day running costs.
The good news for them is that the pensions tax regime in Ireland does allow for an employer to trigger an acceleration in retirement planning for that company director by way of employer contributions to a pension for their benefit. In addition, these employer contributions are a very tax efficient method of withdrawing those profits for the benefit of the business owner as they are allowable for corporation tax in the hands of the employer (subject to Revenue limits – see detail below) and do not trigger a Benefit in Kind (BIK) for an employee (subject to Revenue limits for Personal Retirement Savings Accounts (PRSAs) – see detail below).
There are two pension arrangements under which this pension funding can take place. They have the option to fund under either an Executive Pension in a Master Trust or a PRSA.
Employer Contributions to a PRSA
The funding rules for PRSAs have changed with effect from the 1st of January 2025. The maximum employer contribution to a PRSA that can be tax relieved by an employer and would not trigger a BIK for the employee is now 100% of the employee’s total salary in the relevant year. Although these new rules are more restrictive than what was possible in 2023 and 2024, the funding rules under PRSAs remain straight forward and may favour some clients that have already significantly funded under an Occupational Pension Scheme.
Employee contributions to the PRSA do not form part of these Employer limits, so employees may maximise their own age related personal contribution limits whilst not impacting the employer limits (100% of Salary) which are set out above.
Employer Contributions to an Executive Pension in a Master Trust
The rules which govern employer contributions under an Executive Pension are more complex. Executive Pensions require that a calculation takes place considering the salary, previous service and current pension benefits of that company director. Executive Pensions allow contributions to be made for future service (Ordinary Annual Contributions) and for prior service (Special Contributions).
Employee contributions or Additional Voluntary Contributions (AVCs) to an Occupational Pension Scheme or PRSA AVC form part of these overall limits for Ordinary Annual and Special Contributions and therefore must be deducted from the total limits to determine the ability for an Employer to contribute for the benefit of that employee in the relevant year. Regular employee contributions or AVCs would be seen as Ordinary Annual Contributions whereas AVCs which are backdated to a prior year could be seen as a Special Contribution.
To best illustrate the scope for contributions to an Executive Pension arrangement you can use the Zurich Max Funding Calculator. This calculator produces a comprehensive report showing the maximum allowable contributions for that company director. The ability to contribute under an Executive Pension can then be compared to the PRSA limits above which are more straightforward.
As company directors have a choice as to how to fund for their retirement and both products available have different funding rules, some clients may be better placed pension funding in an Executive Pension under a Master Trust or a PRSA depending on their individual circumstances. In addition to the differing rules governing employer contributions, there are additional variances between how each product will be administered based on the underlying Revenue rules.
Important note: Please note that this Techtalk does not constitute tax advice. Where possible we would suggest that clients consider getting their own professional tax advice based on their own individual circumstances and if necessary, contact the Revenue directly
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Zurich Life Assurance plc Zurich House, Frascati Road, Blackrock, Co. Dublin, A94 X9Y3, Ireland. Telephone: 01 283 1301 Fax: 01 283 1578 Website: www.zurich.ie Zurich Life Assurance plc is regulated by the Central Bank of Ireland.