Not everyone matures their pension and retires. This is especially true for company directors. In many instances, they will mature their pension funds and carry on working. They may have needed to access the tax free lump sum early to fund their business or pay off their mortgage. But that does not mean the end to pension funding. We will look at what options are still open to fund for a pension after you’ve matured your first one.
Your company can make contributions into a PRSA on your behalf. The company can contribute 40% of salary up to earnings of €115,000. In other words, they can contribute up to €46,000 into a pension on your behalf.
This can be repeated on an annual basis all the way up to age 75 (subject to the €2m overall pensions cap). You can take 25% as a tax free lump sum (again, subject to €200,000 limit. The next €300,000 after that is taxed at 20%) and the remainder either invested in an ARF or used to purchase an annuity.
Even if you matured your existing company paid pension, there is an ability to start up a new one. How much can be contributed is a bit more complicated than a PRSA, which is a percentage of salary. The amount you can contribute is the difference between the value of the pension you matured and the value of the maximum benefits under Revenue rules. This can amount to hundreds of thousands of euro. It can be paid as a once off lump sum or through smaller, regular contributions.
There is no second go at the tax free lump sum under this option. The full value of the fund would have to be invested in an ARF or used to purchase an annuity.
You would therefore have to consider how you intend to make the additional contributions. If your intention was regular contributions and the allowable amount is similar to those allowed under a PRSA, it is much more beneficial to use the PRSA structure as you can draw down 25% tax free.
If you have any questions, send me an email at steven@bluewaterfp.ie