Company Pension Plan

Company pension plans, or occupational pension plans as they are sometimes known, are set up by employers to provide retirement and death benefits for their employees.

There are two types of company pension plan:

Defined Benefit pension schemes

Defined Benefit pension schemes are a type of occupational pension scheme. Under a defined benefit scheme, there is typically a commitment to pay you a retirement income calculated based on years of service and salary. You would normally have the option to exchange a portion of that retirement income for a Retirement Lump Sum at retirement.
Under a defined benefit arrangement, you do not have your own pension fund as such. Instead the scheme comprises one large fund from which retirement income and Retirement Lump Sums are paid to members when they retire.

Defined contribution Pension Schemes

Defined contribution (DC) schemes are occupational pension schemes where your own contributions and your employer’s contributions are both invested and the proceeds used to buy a pension and/or other benefits at retirement. The value of the ultimate benefits payable from the DC scheme depends on the amount of contributions paid, the investment return achieved less any fees and charges, and the cost of buying the benefits.

At retirement, your options could include the following:

Company Pension Plan - Neiland Financial Services
  • Retirement Lump Sum

You should be entitled to a Retirement Lump Sum from your pension.
  • Annuity

You may need to use at least part of your pension fund to provide a guaranteed income for life, or Annuity. If you are not in a defined benefit pension scheme, you will need to find the best value annuity on the market.
  • Approved Retirement Fund (ARF)

You may have the option of using part of your pension fund to invest in an Approved Retirement Fund (ARF) which, unlike an annuity, can be passed on as an inheritance. If you have this option and wish to exercise it, you will need to find an ARF that is suitable for you

What is an Executive Pension Plan?

An Executive Pension is a pension set up by employers for executives or key employees of the company. The pension is set up under a trust and typically the employer will act as the trustee. With an Executive Pension both employees and employers can make contributions
The ultimate value of your pension plan will depend on the contributions you and your employer have made over the years and the investment return the funds have achieved in your Executive Pension. Not only does an Executive Pension provide you with a long-term plan for your retirement, it is also a tax efficient way for you to set aside money for when you retire, as well as being a tax efficient way for your employer to provide you with employee benefits. In addition to employer contributions you may be able to contribute up to 40% of your income (depending on your age) into your Executive Pension and claim tax relief

What are the tax benefits of an Executive Pension?

An Executive Pension is an extremely tax efficient way to provide for your future retirement for a number of reasons:
  • Your company’s contributions to the plan are deductible for Corporation Tax as a business expense. Corporation Tax relief on large once-off contributions may be required by Revenue to be spread over a number of years (max. five years).
  • Your company’s contributions to the plan are not subject to a benefit-in-kind charge in your hands for income tax purposes. This means you will not have to pay income tax, PRSI or the Universal Social Charge (USC) on your company’s contributions to your plan.
  • Your plan enjoys tax free investment growth, which means that any growth achieved on your investment is yours to enjoy in retirement.
  • At retirement you can take part of the accumulated fund as a lump sum which may be partially or fully tax free, depending on the value of your fund at that time and how many other lump sums you have taken from other pension arrangements since December 7th 2005.
Company Pension Plan

How can I take benefits from my Executive Pension?

You will have a number of options when it comes to taking your retirement benefits from your Executive Pension. With the accumulated fund, you have two options: you can take a lump sum of up to 25% of your fund or you can take a lump sum amounting to 1.5 times your final salary at the company (provided you have worked for the company for over 20 years).
If you take a lump sum of 25% of your fund, you can either buy an annuity with the remaining balance or invest it in an Approved Retirement Fund (ARF). If you take a lump sum of up to 1.5 times your salary, you must purchase an annuity with the remaining balance.