Calculating maximum employer contribution to Executive Pension Plans?

ITGuy2019

Registered User
Messages
12
Hey,

Just wondering if anybody knows how the calculation is done for the maximum an employer may contribute to an Executive Pension Plan? Lots of explanations online about how to calculate the maximum employee contributions, but for employer it tends to just say that it's based on tenure/salary and is generally greater than the employee limit.


Thanks!
 

Fergal19

Registered User
Messages
70
your pension provider will do it for you. they might even have calculators on their websites. You generally work out the maximum pot and compare it to current benefits. The gap can be funded then evenly each year to retirement.

You will need the following information:
Age
NRA
Salary
Service Commencement
Values of retained benefits
Married Status
 

Conan

Frequent Poster
Messages
964
Most pension advisors /providers can calculate the max contributions if you give them the information above.
 

ITGuy2019

Registered User
Messages
12
Thanks for the replies. I actually have an old calculation done from my pension adviser, I was just curious how the figure is derived so I can understand how it varies as circumstances change.

I couldn't find a calculator online, anybody got a link or a link to the formula itself? Surprised not to find it somewhere on the Revenue site, but that could be my poor searching skills :).

FWIW here is the calculation I had previously, for anybody looking at an exec pension and curious -
Age: 35ish
Tenure: 8-9 years
Salary: €114000
Max employee contribution per annum: €22800
Max employer contribution per annum: €51628
 

fayf

Frequent Poster
Messages
47
My understanding is their is no limit, to what an employer can contribute, allthough i know there used to be Executive schemes that limited the employer amount to a specific % of salary, but that was a scheme rule, not a revenue compliance issue.

As for example above, not many employers would be contributing thr 45 % of salary in the example you gave !!
 

Fergal19

Registered User
Messages
70
there is a limit. a pension is meant to replace income in retirement not to enhance it
 

Conan

Frequent Poster
Messages
964
There absolutely is a Revenue limit to what a Company can contribute to an Executive Pension Plan. The objective is to fund a Pension no more than 2/3rds salary. So depending on your salary there is a limit to how much can be accumulated in a pension fund (subject to an effective max of c€2.15m).
 

Smoneen

Frequent Poster
Messages
22
There are three ways to calculate. Broadly lost common route is Once you have 10 years service in that employment the max fund allowed is 2/3 * salary * revenue capitalisation factor (see ch.5 of the Revenue pensions manual). To work out what annual contribution is then allowed for tax relief in that year take away the value of any existing pension funds and divide that figure by the term to NRA.
Some insurance companies have calculators that do all this for you. See below for one example - look under quick links for the max funding calculator https://www.zurich.ie/broker-centre/max-funding-calculator/
 

ITGuy2019

Registered User
Messages
12
Great thanks all, have a much better sense of how this works now.

The other thing I thought interesting about the funding quote I gave above was that you have the option of a once-off payment of just over €500k into the pension, with reduced annual payments allowed thereafter. Could be very handy if you're the owner of a small business with some spare cash.
 

Conan

Frequent Poster
Messages
964
Great thanks all, have a much better sense of how this works now.

The other thing I thought interesting about the funding quote I gave above was that you have the option of a once-off payment of just over €500k into the pension, with reduced annual payments allowed thereafter. Could be very handy if you're the owner of a small business with some spare cash.
Yes, but such a lump sum contribution by the Company will be spread forward for Corporation Tax relief.
 

SPC100

Frequent Poster
Messages
378
Is this true for any dc occupational plan? Or do I need an 'executive pension' plan for this?

e.g. I am in a dc occupational plan. I have maxed my employee relief, and I would happily sacrifice more of my salary, and have my empolyer put it directly in my pension.
 

SPC100

Frequent Poster
Messages
378
Doh! Thanks! Is there some way to take advantage of this if you are a 'normal employee' and would rather your employer focussed on your pension.
 

Zenith63

Frequent Poster
Messages
294
Doh! Thanks! Is there some way to take advantage of this if you are a 'normal employee' and would rather your employer focussed on your pension.
I don’t know the answer as to whether this stuff is open to non EPPs, though I’m curious, but one solution to the salary sacrifice piece is that the next time you’re due a salary increase or anything like that, have it as employer contributions instead. It’s not salary sacrifice if it’s not yet salary...
 

Nicetoknow

Registered User
Messages
24
That's a helpful calculator.

How does one decide what 'Normal Retirement Age" to input? It would seem to make sense to put in 60 to be able to put more cash into fund early in life? Is there any reason someone would input 70?

Who really knows when they will retire?
 

Zenith63

Frequent Poster
Messages
294
Yeah it’s just a matter of taking a reasonable stab at it, for the average person in their 20s/30s now and with the improvements in healthcare, there’s a good chance you will choose to work to at least 65. If you’re on a small salary and have little prospect of improving that over the course of your life, then 70 is required if you want to maximise your retirement income, whereas if you’re 45 and own your own business that is doing well and are pumping money into your pension, you may want to and have the means to retire easily at 50.

For the average person 65-70 seems like the number to go with.
 

kevhenry

Registered User
Messages
48
Thanks for the replies. I actually have an old calculation done from my pension adviser, I was just curious how the figure is derived so I can understand how it varies as circumstances change.

I couldn't find a calculator online, anybody got a link or a link to the formula itself? Surprised not to find it somewhere on the Revenue site, but that could be my poor searching skills :).

FWIW here is the calculation I had previously, for anybody looking at an exec pension and curious -
Age: 35ish
Tenure: 8-9 years
Salary: €114000
Max employee contribution per annum: €22800
Max employer contribution per annum: €51628
Here's a calculator that works it all out including the tax free cash option.

It's calculated using a formula which uses the capitalisation factors set by Revenue for a shareholding director with 10 years service by retirement age.

Kevin
www.thepensionstore.ie
 
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