How to Setup Your Pension Contributions as a Business Owner

Retirement is a natural step in any person’s life - whether you’re self-employed or work in a corporation. Unlike established companies that have well-developed pension schemes for their employees, self-employed individuals and business owners need to devise their pension plans. At Baker Tilly, we work with a lot of our clients who are business owners and company director's on pension contribution plans to ensure they are making full use of the most tax efficient process available to them. As a business owner, increasing your monthly contributions to your pension is a tax efficient way of taking money out of your business and adding it to your "personal wealth" fund. Self-employed individuals and small business owners are entitled to a state pension in Ireland. However, you can only take advantage of this if you qualify in two criteria:

1. You’re older than 66 years old.
2. You have paid the minimum required PRSI social contributions.

Unfortunately, state pension varies and may not be able to support your standard of living when you retire. As a self-employed individual, it is necessary to start planning your retirement as early as possible. In Ireland, there are two pension setups for business owners that you can use to your advantage.

1. Personal Retirement Savings Account (PRSA)
2. Retirement Annuity Contract (Personal Pension)

Let’s look at these in detail.

Personal Retirement Savings Account (PRSA)

PRSAs are tax-approved investment accounts that you can set up especially for retirement. PRSA was first introduced by the Pensions Amendment Act, 2002 for Irish citizens to flexibly plan for their retirement. This account can be set up by signing a contract directly with a PRSA provider. There are two types of PRSA accounts:

1. Standard PRSA: This type of account caps the annual management charges at 1%. However, the account also restricts the type of investment you can make.
2. Non-standard PRSA: This type of account has no caps for any maintenance or other charges. However, it provides greater investment options.

How to set up PRSA accounts? 

Pension set up for business owners in PRSA can only be done after getting approval from The Pensions Authority and The Revenue Commissioners. The former also maintains a register of all the PRSA providers who are approved in Ireland.   If you aren’t eligible for any existing pension schemes in the business or Ireland, your employer is required by law to provide you access to standard PRSA. 

Retirement Annuity Contract

Retirement Annuity Contract is a personal pension set up for business owners that are managed by a life assurance company. This type of pension plan allows you complete control over the investment amount, its benefits and returns. Retirement Annuity Contracts are ideal for individuals who have experience in direct investment. Retirement Annuity Contracts are considered high-risk investments, even though they allow you to invest in various equity securities and fixed interest schemes. However, the advantage of this pension scheme is you can make more than one contribution to the account in any financial year.  

How to set up a Retirement Annuity Contract? 

Retirement Annuity Contract can be set up by any individual that does not have access to or is ineligible to the pension schemes provided in Ireland. You can set up a Retirement Annuity Contract by directly contacting a life assurance company or a financial advisory. PRSAs and Retirement Annuity Contracts both come with paperwork that lists all the benefits, exceptions, and requirements. If you’re unable to understand the required paperwork, you can contact accounting experts who can help you set up a pension plan. If you have a business and are interested in talking more about pensions as a business owner as well as other tax liability measures, please reach out.