Company Director Or Business Owner [2-2]

Pension funding opportunity [Continued]

At the beginning of January 2023, a small wording change to pensions legislation resulted in a significant opportunity for company directors and business owners to fund larger pension pots than before.

Since January 2023, an employer contribution to a Personal Retirement Savings Account (PRSA) for an employee, is no longer taxable as a Benefit-In-Kind (BIK) for that employee.

In essence, this change now allows an employer to contribute to a PRSA with no upper limit on employer contributions. In fact, the only limit is the lifetime Pension Fund limit which is currently €2,000,000.

This rule change will be of significant interest for business owners and directors, as it means that they can now move profits from their business into a PRSA for themselves, for employed family members, and for employees.

Let’s briefly explore some of the new PRSA opportunities

3. An Investment Company

Profile: Alice holds a number of rental properties within a holding company. She draws a salary from the business.

Current Pension arrangement

As a 20% Director of an Investment Company, Alice is excluded from taking out an Executive Pension.

The new PRSA opportunity

No such restriction has been made in respect of PRSAs, so an investment company could contribute to a PRSA for the benefit of a 20% director that is employed by that company. It’s important to note that Alice must be drawing a salary which is taxable under PAYE in order to access the PRSA route.

4. Company Directors who have already accessed an Executive Pension Profile: Justin funded an Executive Pension and accessed it last year under the Normal Retirement rules. He still works in and owns his own business.

Current Pension arrangement

Justin funded an Executive Pension for €1,000,000 and took his benefits at maximum retirement age (70) last year.

The new PRSA opportunity

As Justin still works in the business, he can now invest up to another €1,000,000 in a PRSA policy.

5. Self Employed business owner with Spouse employed in the business Profile: Gerry is a self-employed Accountant and can only save into a pension based on his personal income which will be limited by the age-related personal limits and the Earnings Cap. However, Gerry’s spouse Emma is an employee in the Accountancy practice. As Gerry is her employer, he wants to provide a pension arrangement for her benefit.

Current Pension arrangement

Gerry as the employer set up an Executive pension for Emma. Both Gerry (as Emma’s employer) and Emma (as employee) contribute. The employer’s ability to fund is limited by Revenue’s funding limits for Executive Pensions.

The new PRSA opportunity

As Emma is Gerry’s employee, Gerry as the employer could fund a PRSA on her behalf with potentially no upper limit on the employer contribution possible for Emma (other than the Employers capacity to make such a contribution and the overall lifetime limit for the maximum pension pot (Standard Fund Threshold).

Reach out today

Contact us today and book your consultation https://www.quigley.ie/book-consultation and see how Quigley Financial Brokers can help you choose the best options available or contact richard@quigley.ie for further information.