# Proprietary director pension contributions



## davbre87 (4 Dec 2013)

Hi,

I have a limited company incorporation in 2013, am 35 years old and have not yet started a pension. This year I have paid myself 32800 and the company has 40000 on account (i.e. profits liable to corporation tax in 2013). I would like to do two things, (1) start a pension and (2) minimise my corporation tax liability for 2013.

I understand that at my age I can put an annual contribution of 112% of my salary (from moneywise.ie). So, on my current salary I could invest up to 36736.

Assuming I invest 36736 in a pension, am I correct in saying that only the balance of 3264 would be liable to corporation tax? If so, is it the case that the investment would have to be made before the end of the year?

Thanks,
Dave


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## Conan (4 Dec 2013)

Based on an assumed retirement age of 60, I think the Revenue maximum contribution for a 35 year old is 86% of Salary. I think the 112% figure is now out of date.
In terms of timing, if you want to offset the contribution against Corporation Tax in 2013 (assuming your Co. year end is 31st Dec) then yes the contribution must be invested before year end.


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## davbre87 (5 Dec 2013)

Thanks Conan.

I just came across the same figure of 112% on simplepensions.ie. However, from other people I've spoken to, I think there are other factors. When it's clearer to me, I'll post back.


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## davbre87 (6 Dec 2013)

With my circumstances (age of 35, no other pension), it turns out that based on a salary of 32800 I have two options. I only have approximate figures:

Option 1: up to about 21k per annum into a pension
Option 2: up to about 40k in the first year as a one-off payment, and up to about 20K per annum thereafter


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## fangs (6 Dec 2013)

A few things to consider as a company director (I'm one myself and an amateur Pension enthusiast).

Setup an executive pension plan.  AFAIK there are less restrictions on these in terms of % of income that can be put into your pension (I stand to be corrected here).  
You do not pay PRSI and USC on an executive pension.  You will if taking out a personal pension as a company director.

There are good deals out there at the moment in terms of companies willing to provide 103% allocation for lump sums, payment of Pension 0.6% levy.  The caveat being there are minimum terms for staying with the same company.

In general you are better off paying into a pension on a regular basis instead of a lump sum (aside from the initial contribution).  This ensures you spread the risk of riding the peaks and troughs of the stock market.

Find an independent pension advisor who has access to all market pension products.  Meet your advisor once or twice a year to review your options and keep an eye on performance.

Shop around for the best management deal.  I have a Zurich life pension for 0.6% management fee obtained in the good ole days.  Typical fees nowadays 1.5% (???).  There are options for self administered and fixed up front commissions plus smaller fund management fee.  Do your research and make an informed decision, don't be afraid to negotiate and play companies off each other.

As you're relatively young, assess options for 'riskier' funds, geared funds with your advisor.  Don't get hung up on pension values falling.....this can actually be a good thing if you're a way from retirement as annuities become cheaper to buy e.g. for those who stuck with their pensions after the crash in 2008 are reaping the benefits now.

Pensions are one of the last ways of extracting cash (so to speak) from your company now.  But beware the government are changing Pension rules all the time. The Projected Pension Value threshold is dropped to 1.5million, who says they won't drop this again?  Not to mention Pension Levys, dropping tax free lump sums, who knows where it will end - there is a degree of uncertainty about the future of pensions but very little we can do about it until election time.

Another option I'm currently exploring is keeping money in my company, paying 12.5% corp tax and investing in a business fund.  There are options for taking redundancy after the age of 55 if you plan to still have your company in 20 years time.  Again professional financial and tax advice essential here.

My two cents


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## Conan (6 Dec 2013)

Davbre87,
Normally you can match the annual contribution with a one-off contribution. However this typically can only apply where you have past unfunded service with the Company. But if you only started the Co. in 2013 then you will not have any past service. Based on your original post I think you can only contribute up to 86% of Salary for 2013.


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## davbre87 (7 Dec 2013)

@fangs: Thanks for your input. My plan is starting to take shape now, and I've more or less decided to have two separate pension products.

I'm in the process of setting up an executive pension portfolio with Davy, which basically provides a similar platform to a normal trading account (i.e. I decide what to invest in, in terms of shares, currency etc). The other pension fund will be a managed executive plan with one of Standard Life, New Ireland, Zurich, First Active etc.

I met an independent financial advisor yesterday and asked him about what allocation rates I might achieve and he mentioned that some are as low as 95% but 97.5% would be what I should expect. So, your comment about offers of allocation rates of 103% come as a bit of a surprise. Feel free to pass on some details 

Regarding the management fees, for most funds they seem to fall in the range 1 - 1.7%. It's not always the case, but it looked to me that the funds rated riskier had higher fees. To be fair, I only looked at Standard Life and New Ireland, and New Ireland's fees looked cheaper (with some falling below 1%). I'll see next week what kind offers are on the table.

As for extracting money from the company, I am totally allergic to paying myself out the cash. I just can't stomach paying 55% tax. I'll explore any other legitimate avenue and at the moment the pension is where I'm at (which is a good thing, as I don't have one). Next year I'm thinking I'll work less, i.e. earn less money, have more time off, pay less tax 

@Conan: I've received feedback from both the financial advisor and another party that I can invest about 39k. In both cases, they were aware of the incorporation date of the company. That said, neither could say definitively, so you could well be correct. When I get more info, I'll post back.


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## fangs (8 Dec 2013)

Sounds like you're well covered but I'm surprised at the allocations. I have a New Ireland Pension and got the 103% allocation on lump sums and 100% on monthly payments and they're paying the 0.6% Pension levy aswell.  My mgt fee is 1.5% for that pension.  I took it out this time last year, sounds like they're not offering it though if you've checked already.  I'll send you a pm with my advisors details, maybe worthwhile getting a second opinion.

I hear ya on the tax thing.  For the last three years I've been doing the Section 481 film relief scheme, there's a good return on this and its relatively straight forward.  I look out for tv shows that are commissioned by a BBC or RTE and reckon the investment is pretty safe.  Currently looking at the EIIS (formerly BES) aswell.  This is a bit more of a punt, but worth while keeping your eyes open for opportunities.  Other than that I'm gonna start keeping money in my company and paying corp tax.  I'll invest this money in funds and forget about it.  Come the time plan will be to close the company and take redundancy.  It'll always be there as a rainy day fund aswell.


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## Steven Barrett (12 Dec 2013)

Can I clarify something on this annual contribution/ single contribution issue. This is a myth.

The Revenue do not care if you make a single contribution, monthly premium or annual. They only care about your Ordinary Annual Contribution. That is the maximum you can put into a pension that year. You can pay it whatever way you want. 

If you make a Special Contribution (usually for back years which won't apply here), the tax relief is spread forward based for up to 5 years. 

You'll get the formula for the maximum you can contribute in Chapter 5 of the Revenue manual. I don't know if you have retained benefits or married, so I can't calculate it for you. A good adviser will make sure you don't over contribute. 

 [broken link removed].


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