When you run a business, you need to be focused on growth, clients and the day-to-day demands of operations. But many business owners forget one crucial detail: Nobody is putting money into your pension but you.
Unlike employees with automatic contributions from their employer, directors and self-employed individuals need to take retirement planning into their own hands. And the truth is, those who plan early can benefit twice – once through long-term security and again through significant tax savings.
Why Business Owners Shouldn’t Delay Pension Planning
It’s common for business owners to prioritise reinvesting profits over pension contributions. But postponing retirement planning can be a costly mistake. Here’s why:
- Financial security later in life: A pension provides a steady income in retirement, so you’re not relying on your business alone.
- Tax efficiency: Contributions are a legitimate business expense, reducing your Corporation Tax liability.
- Contribution flexibility: Unlike PAYE workers, company directors can contribute far more and at times that suit their cash flow.
The Director’s Advantage: Much Higher Cap on Employer Contributions
One of the most overlooked advantages of being a company director? Your business can make considerably higher pension contributions on your behalf.
Unlike personal pensions, which have strict limits for tax relief, employer contributions to an executive pension or PRSA can be much higher, structured to suit your retirement goals and reduce your taxable profits.
You benefit from:
- Lower corporation tax
- No PRSI or USC on pension contributions
- More efficient wealth transfer into your future retirement fund
Why Pensions Beat Salary for Building Wealth
Paying yourself through pension contributions can be far more efficient than simply increasing your salary.
Consider these scenarios:
- A €20,000 salary increase could be heavily taxed with Income Tax, USC and PRSI.
- The same €20,000 paid into a pension avoids PRSI and USC, and reduces the company’s taxable profit. (And over the next number of years it will be invested and grow tax free too.)
That’s a win for you and your business.
Company Pension vs PRSA: What’s the Difference?
| Feature | Executive Pension (Company Pension Scheme) |
PRSA (Personal Retirement Savings Account) |
|---|---|---|
| Employer Contributions | The Company can make contributions for the current year and past service. Limits are based on salary and service | The Company can contribute up to 100% of the employee’s salary each year. Past service cannot be funded for. |
| Benefit in Kind | None | Only on contributions greater than 100% of salary. |
| Investment Control | A wide range of funds offered by the pension provided | Greater choice of options through a PRSA, inc. buying property. |
| Retirement Age | Typically between 60-70. Benefits can be taken without having to leave service or severe links with the company | Typically between 60-75. The director does not have to dispose of all shares but must be retired from all employments. |
| Early Access | Access from aged 50 where employment linked to the scheme has terminated & all links to the company have been severed. | Access from aged 50 where employment linked to the scheme and all other employments have ceased. Shareholding / link to the company do not have to be severed. |
The Sooner, the Better
The best time to start saving for retirement was yesterday. The second-best time is today. With every year that passes, the cost of inaction rises and the tax benefits go unclaimed.
At Lynx Financial Services, we work with company directors, small business owners and the self-employed to put the right pension strategies in place. Strategies that reduce tax, build wealth, and secure your financial future.
Planning for Today, Tomorrow and the Unexpected
At Lynx Financial Services, we believe financial planning shouldn’t be complicated or overwhelming. That’s why we take a personalised, straightforward approach, helping you save for today, tomorrow, and the unexpected.
No jargon. No hidden fees. Just clear, honest advice tailored to your goals.
Whether you’re looking to grow your investments, plan for retirement, protect your family, or secure the right mortgage, our expert advisors are here to guide you every step of the way.
Your financial security is our priority, and as a member of Brokers Ireland, regulated by the Central Bank of Ireland, you can trust that you’re in safe hands.
Ready to start the conversation? Get in touch for a no-obligation chat. 📩