Recent changes to pension legislation in Ireland offers a huge opportunity to business owners to fund their pensions and extract cash from their business in a tax efficient manner.
Previously, companies were limited in how much they could contribute to an employee’s pension by age related limits, service and salary.
If a company made a contribution to an employees PRSA which exceeded these age related limits, the employee would be liable for BIK.
The new rules now allow companies to contribute as much as they want to an employees PRSA without taking limits, service or salary into account.
This offers a massive opportunity to business owners who wish to fund pensions for themselves, their spouse, or children.
Tax relief on all employer PRSA contributions can be claimed in the accounting period in which it is paid. Under previous legislation, tax relief for ‘special contributions’ to pension would have to be spread forward over five years.
Employees will still need to consider the overall standard fund threshold of €2 million. When pension assets exceed this amount and are accessed, they face a punitive tax rate of 71%.
However, if an individual holds a PRSA to the value of €4 million. They can split this fund into two.
They can then access one PRSA and use it to fund their lifestyle in retirement, while leaving the second fund untouched, growing tax free, as an inheritance for their estate.
PRSAs were overlooked in recent years in favour of executive pension plans or occupational pension schemes. This was because the PRSA offering was not as attractive. However, with this recent tweak, many business owners will utilise the PRSA to extract cash from their business in a tax efficient manner. Further good news is that the company can contribute to both an occupational pension and a PRSA for an employee.
Self Employed Sole Traders or Partnerships can pay a BIK free employer PRSA contribution for an employee and this can include adult children (over 18) who can be put onto payroll. The contribution to a Revenue approved pension, such as a PRSA, is not subject to CAT even where there is a family relationship between the parties. Therefore, contributions can be made to a child’s pension, if they are employment and over 18, without impacting the CAT A exempt amounts.
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My initial meeting with Darach was as a Lecturer in LIT who will have less than 40 years- service at retirement. After a completing a review, I had a clear understanding of how my pension worked and how best to optimize it going forward.
I have found Darach to be very friendly, knowledgeable, no way pushy and quite transparent in his recommendations. I would strongly urge you to have that initial consultation. My experience of Honan Financial Services has been a very positive one both personally and financially.
I was looking for alternatives to saving in the bank as there was little to no growth to be had in their savings accounts. Honan FS made it very easy to invest in a multi asset fund which meets my long-term goals. I’d recommend Honan FS to anyone looking for advice on any aspect of their financial planning.
When taking out our mortgage we were offered mortgage protection by the bank. After a review with Darach we found a policy which was more comprehensive and better value for money. We were also able to optimize our savings through a regular savers policy which has achieved far better returns than what was on offer with the bank.
At the start of 2021 we both decided to do a health check on our financial status. We both had occupational pensions schemes left from previous employers and we reached out to Darach for assistance and advice on transfer options. Darach was excellent in helping us map out our future financial needs , determining our outlook to risk , providing sound financial advice and discussing best performing options to suit us
Darach dealt on our behalf with the previous pension providers and their associated agencies and the whole process we felt was very professional and a seamless transaction to us. Because of interest rate returns on bank deposits /post office being virtually zero and essentially loosing money on deposit we also seeked advice on alternative investment products for the mid to long term.
We were looking for products that gave a good rate of return and that we could lock away for 10 years plus to help with education funding. Both requirements were met very professionally by Darach and his team. We are both very happy we reached out to Darach . The only regret was we didn’t do this a few years earlier but better late than never.”
Darach has looked after my pension for a number of years and once he setup Honan Financial Services, it was an easy decision to move my pension / financial planning with him. Darach continuously demonstrates a thorough and rigorous approach to customer service and his clients individual’s needs. He is thoroughly professional, exceptionally friendly and the best in the west in my opinion. I would highly recommend him to all.