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The Directors Pension For Business Owners And The Advantages Of Having One

Updated: Oct 25, 2023

How does a Director's Pension work?

A Directors Pension can be the most tax-efficient way for you as a director to get profits from your business into your own name.

What are the benefits of a Director's Pension for the company?

A Directors Pension is a type of pension that can be set up by a company to benefit its directors. By doing this, the company can transfer company profits away from the business and put them in the name of a director. This can help the company avoid the 12.5% corporation tax bill that's due on these profits (within Revenue limits).

How does the tax treatment of a Director's Pension work?

Any contributions that the company makes to the Directors Pension are flexible, and the director has no Benefit in Kind (BIK) liability on the pension monies received from the business. Additionally, company directors can make personal contributions to their Director's Pension and receive tax relief of either 20% or 40% on their contributions (within Revenue limits).

Are there any other benefits of having a Directors Pension?

Yes, there are! For one, unlike most other occupational pension arrangements, a company director can retire as early as fifty years of age. If they wish to retire and draw on their pension benefits anytime from age fifty onwards, they can still remain working in the business.

What options are available to a director at retirement?

At retirement, a director will have multiple options for how they wish to use their pension fund. Firstly, they are entitled to take 25% of their fund as a tax-free cash lump sum, within limits. Then they have the usual retirement options open to them, such as ARF and Annuity.

Are there any other additional benefits?

Yes. A Director with at least 20 years of service may also take 150% of their final salary as a tax-free lump sum. Additionally, company creditors have no access to a Directors Pension, and a director can ring-fence company money in their own name and away from their business.

Contact the retirement planning team in Citywide Financial for more information

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