Pension basics

A

Amri

Guest
Hi there,

I'm currently working with an umbrella company for the last year or two, and I feel it might be time to start a pension (I'm 28). I'm going to be moved over to a LTD company where I'll be 'director', but my contract is only guaranteed until October.

So the Umbrella staff suggested I start an 'Executive Pension' - can anyone PLEASE explain what this is, and how it differs from a regular Pension? And when starting a pension, am I better off setting up one with the employer or independantly with a bank or whatever? How can I compare pension schemes?

I'm really reluctant to phone them up for advice yet because I REALLY have no clue what they're talking about.

What are the questions I need to ask?

Would really appreciate your assistance here!!
 
An Executive Pension is another term used to describe an Occupational Pension Scheme, or "Company Scheme". You set up an XYZ limited pension scheme with you as the member. The company and you can make contributions to it. Contributions by the company are separate from your salary.

Given that you appear to be working on short-term contracts, I'm not sure that it is the most suitable option for you. If you cease working for XYZ Limited, you must cease contributions to your Occupational Pension Scheme. This could happen in October.

A possible alternative would be a Personal Retirement Savings Account or PRSA. Your company and you can still make contributions to a PRSA but if you move to a different employer, you still have the option to continue contributions to the same PRSA.

Have a look at the introductory guides on pensions on the Financial Regulator's website www.itsyourmoney.ie
 
Thanks everyone, that info and those links were extremely useful! Much appreciated.

If I did decide to go for the Executive Plan, here are the terms ....

Special Preferential Rates on this product for XXX Contractors

  • 101% Allocation Rate
  • 1.35% Management Charge
  • No Bid Offer Spread Charges
  • No Admin Charges
  • Policy fee at a reduced rate of €4.25 per month
  • Bonus payable at the end (5% of the Fund Value)
  • Over 50 Funds to choose from
  • No other hidden costs.
The way this would work is:

  • You choose an amount to contribute every month
  • We set the policy up in by liaising with Your Account Manager
  • A direct debit for this amount would be set up from your company bank account for same (this is done by us)
  • This amount would then be written off as a legitimate business expense through your company
  • The net cost to you is the pension contribution amount less your marginal rate of tax and PRSI.

How does this look in your opinion?
 
Hi Amri,
I'm a contractor as well. On reading the executive pension offer you mentioned it sounds incredibly similar to the offer my accountants company made to me recently. So I reckon there is a chance we could be using the same accountant firm.
What interested me about this executive pension plan was that you could access the money at 55yrs old and you could contribute more of your earnings into the pension plan.
With standard pensions like a prsa you have limits on the amount of income tax relief you get depending on your age. eg if you're under 30 yrs old you can contribute 15% of your net earnings to your pension.
However from what I understand if you're a director and have one of these executive occupational pensions plans you can contribute more of your % income.


What puzzles me about standard pensions such as a standard prsa is how these income tax reliefs limits are enforced. eg If you're a contractor and you pay a fixed monthly amount into a prsa pension from your gross salary, the gross amount you get paid as a contractor could fluctuate each month and you could be out of work evey now and then. So lets say then you exceed your 15% net earnings limit. What happens at the end of the year?
The amount you pay into your pension doesn't appear on your P60 as far as I remember. So how does revenue find out if you've exceeded the 15% limit? Is your accountant supposed to enforce it?

Anyone know the answer?
 
agencydude said:
What interested me about this executive pension plan was that you could access the money at 55yrs old and you could contribute more of your earnings into the pension plan.
With standard pensions like a prsa you have limits on the amount of income tax relief you get depending on your age. eg if you're under 30 yrs old you can contribute 15% of your net earnings to your pension.
However from what I understand if you're a director and have one of these executive occupational pensions plans you can contribute more of your % income.
Click to expand...

Yes, with any Executive Pension Plan (a.k.a. Occupational Pension Scheme) you have the option of retiring from 50 onwards and the company can put greater percentages in than the age-related limits.


agencydude said:
What puzzles me about standard pensions such as a standard prsa is how these income tax reliefs limits are enforced. eg If you're a contractor and you pay a fixed monthly amount into a prsa pension from your gross salary, the gross amount you get paid as a contractor could fluctuate each month and you could be out of work evey now and then. So lets say then you exceed your 15% net earnings limit. What happens at the end of the year?
The amount you pay into your pension doesn't appear on your P60 as far as I remember. So how does revenue find out if you've exceeded the 15% limit? Is your accountant supposed to enforce it?

Anyone know the answer?
Click to expand...

When you/your accountant is making up your end of year tax return, it will become apparent if the amount paid into a pension arrangement exceeds 15% of actual gross income for the year. Any excess tax relief can be carried forward into future years.
 
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