Executive Pension - Should I start contributing?

[darrencou]

Hi,

Me and my partner own a trading income company 50/50 and the company is doing quite well and it has started to build up some cash on its balance sheet.

We currently don't take any salary from the business as we have income coming from a rental property.

Somebody told me a while back that we should start taking a small salary from the business (4-5k) so we can build up a bigger executive pension later.

We don't personally need to take out any money from the business currently but just wondering if it would be a good idea to start taking a small salary - does it some how help us make bigger executive pension contributions later on.

Thanks

 

[LDFerguson]

A small salary only supports small Executive Pension / Master Trust contributions. If the Finance Bill is signed into law in the next week or so without changes (which is looking likely) then it will be possible for you to draw a small salary from your company and the company can make larger contributions to a PRSA, from 1st January 2023.

 

[Steven Barrett]

Agree with Liam, the PRSA is perfect for this situation from 2023 onwards.

 

[darrencou]

Thanks Liam and Steven .. is there any document or webpage that compares the pros and cons of the Executive pension and the new 2023 PRSA.

I am quite new to learning about the different pension types.

Would the new PRSA allow you to contribute as large a contribution as you want regardless of salary size? Can the pension contribution be writen off as a company expense?

Is it possible to for me to invest the executive or PRSA pension money in a very low cost Vangurad global tracker?

I had read that an Executive pension allows for larger lump sum removal when you retire. Thanks

 

[LDFerguson]

is there any document or webpage that compares the pros and cons of the Executive pension and the new 2023 PRSA.

I'm not aware of such a document or webpage. As the Finance Bill has not yet been signed into law, I'd say it might be 2023 before someone writes one up. In theory, President Higgins might not sign the bill into law at the weekend and any such comparisons would be invalid. (Unlikely, but possible in theory.)

Would the new PRSA allow you to contribute as large a contribution as you want regardless of salary size?

As the bill is currently written, yes.

Can the pension contribution be writen off as a company expense?

Yes.

Is it possible to for me to invest the executive or PRSA pension money in a very low cost Vangurad global tracker?

It is. Vanguard don't issue pension plans in Ireland. So you will pay for the pension structure and then pay Vanguard for the fund. Standard Life have a bundled product with Vanguard fund options, or you can go with a self-administered pension product which can invest in Vanguard ETFs.

I had read that an Executive pension allows for larger lump sum removal when you retire.

That's not strictly true, although it can work out that way in some situations.

The lump sum at retirement from a PRSA is 25% of the accumulated fund.

The lump sum at retirement from an Executive Pension plan can be either (a) 25% of the accumulated fund or (b) a sum calculated by reference to your salary and length of service with the company, which can be up to 1.5 times your salary at retirement, subject to a few conditions. Sometimes it will work out that 1.5 x your salary > 25% of your fund; sometimes it will work the other way around. You can choose the one that suits you.


Regards,

Liam
www.FergA.com