Planning ahead for a secure financial future

IT is fair to say that there are many forms of pension plans available at present. In general it is the individual’s mode of employment that would dictate which type of pension plan you would be commencing.

This article aims to outline some of the key areas of a Personal Pension Plan and Executive Pension Plan and how FDC Financial Services can provide the necessary support and advice in assisting you in your retirement needs.

(A) Contribution Rates -Personal Pension:

Only certain individuals are eligible to contribute to a personal pension.

1) Self employed – in a trade or profession and have Net Relevant Earnings (NRE) taxed under schedule D case I or II.

2) Employed person – with PAYE salary taxed under schedule E and not a member of an employer’s company scheme.

An individual will get income tax relief on their pension contributions up to an annual limit related to their age and net relevant earnings. The table below outlines the limitations.

Age % of net relevant earnings Under 30 15% 30-39 20% 40-49 25% 50-54 30% 55-59 35% 60 and over 40% Example: An individual aged 35 with net relevant earnings of €50,000 can contribute a maximum of €10,000 per annum to a personal pension.

Example: An individual aged 35 with net relevant earnings of €50,000 can contribute a maximum of €10,000 per annum to a personal pension.

Contribution Rates - Executive Pension:

An executive pension plan is a pension plan designed for company directors and owners & employees of the company. A company director is only eligible to take out an executive pension if they are set up as an employee of the company and are in receipt of schedule E income from the company. This would include salary or wages, bonuses and commission payments, holiday pay.

Contribution levels to an executive pension plan depend on a number of factors such as your age, salary, marital status and other pension assets built up previously. It also depends on the amount of funds which are available in the company to commit to a pension scheme. The maximum pension that can be provided at retirement is a pension of 2/3rds final salary after 10 years of service. This is reduced for service less than 10 years.

For directors of a company an executive pension is one of the few ways to take money from the company in a tax efficient manner. The company will receive corporation tax relief (currently 12.5%) on contributions paid to the scheme. The assets in the scheme grow tax free.

(B) Where to invest your pension fund – Personal & Executive Pension

The next step following the decision to commence a pension plan is to look at options on where to invest your funds. The criteria to make this decision for both personal and executive pensions are generally the same:

Administration Structure of the scheme

Fund choice and performance history

Access to self-directed investment options

Costing structure i.e. allocation rates, management charges etc.

Flexibility of the scheme i.e. contribution rates etc.

Your own individual attitude to risk taking

In recent years companies have developed a range of Multi Asset Funds which are tailored to suit your individual needs and your attitude to risk taking.

(C) Retirement Options -Personal Pension:

Retirement benefits can be taken at any stage from age 60 and benefits must be taken before aged 75. In some cases benefits may be taken earlier due to ill health if the individual can show that they are permanently incapable or mentally of carrying out their own occupation or any other occupation of a similar nature which they are trained or fitted.

The benefit provided will depend on the size of the fund when you reach retirement age. If you have more than one personal pension retirement benefits can be taken from each plan all at once or at different times.

Executive Pension Plan - Retirement Options:

The normal retirement age can be set between ages 60 and 70. However early retirement from an executive pension scheme can be taken from aged 50 onwards with the consent of the trustees of the scheme. In order to take early retirement you must leave service with no expectation of returning and in the case of a 20% director you must also sell your shareholding in the company. It is important to note that the disposal of shares to a spouse / civil partner or to a minor child will not meet this requirement.

However the disposal of shares to an adult child who is working in the business is allowed.

While there is no one option fits all it is important to set a goal for your pension fund and to have the proper planning and structure in place prior to your retirement, be it a personal or executive pension. It is also important to seek advice from an independently qualified broker before making your decision.