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Master Trust or PRSA for Company Directors

Choosing between a Master Trust and a PRSA (Personal Retirement Savings Account) depends on your priorities and financial situation as a company director. We will break down the key distinctions between these two retirement savings vehicles, helping you decide which one best suits your needs, including who manages them, contribution limits, and flexibility.

 

A Master Trust is a type of occupational pension scheme designed for multiple, unrelated employers to participate under one trust deed. Each employer has its own section within the master trust, but there’s a single trustee board managing the overall scheme.

 

A PRSA is a personal retirement savings account for business owners or individuals. You set up and manage your own PRSA, choosing your investment options and contribution amounts. PRSAs are not subject to IORP II regulations.

 

Here are the most important factors for choosing between a master trust or PRSA pension for company directors in Ireland:

 

 

Understanding pension contributions

 

Master Trust

Employer contributions are capped and still subject to maximum funding limits based on salary and service; however, this can translate to a bigger tax-free lump sum at retirement.

 

PRSA

The 2022 Finance Act removed the tax burden (benefit-in-kind) on employer contributions. This means employers can now contribute larger amounts to employee PRSAs (no restrictions on contributions based on salary or service history). Employer contributions can fund up to the Standard Fund Threshold limit of €2 million, allowing for potentially larger contributions and offering more flexibility.

 

This can be a significant advantage for directors looking to maximize their retirement savings. This applies to everyone, including company owners and their families who are genuine employees receiving a salary.

 

 

Which pension option offers higher tax relief?

 

Master Trust

Regular (employer) contributions receive corporation tax relief in the year of payment, but one-off contributions may have relief spread forward over five years. Full relief will only be given in the year of payment where the total single premium amount is less than or equal to the total employer regular contribution paid in respect of all employees. 

 

PRSA

All contributions paid will receive immediate tax relief in the year it is paid. The 2022 Finance Act abolished the Benefit in Kind (BIK) tax for employer contributions to PRSAs. This means company contributions to a director’s PRSA are even more tax-efficient than before.

 

 

Master Trust or PRSA for Company Directors - Complete the form below to book a consultation

 

 

 

At what age can I access my pension benefits?

 

Master Trust

Normal Retirement Age (NRA) can fall anywhere between 60 and 70 years old. In some cases, you may be eligible for early retirement from a Master Trust if you are either over 50 years old and have left your employer (with employer/trustee consent) or due to a disability or long-term illness.

 

PRSA

You can generally access your benefits from a PRSA starting at age 60 in Ireland. This is the earliest age at which you can begin drawing funds from your account. It’s important to note that while 60 is the minimum access age, there are some flexibilities:

 

You can wait until age 75 to take your benefits.

There is no requirement to retire at 60 to access your PRSA funds.

In certain cases, you can access your benefits at age 50 when leaving employment or due to disability or long-term illness.

In an early retirement scenario, at age 50, as a 20% director, there is no requirement to relinquish your shareholding. Simply leaving employment with the linked employer will suffice. If you are a 20% director in a Master Trust, you must relinquish your shareholding, as well as the shareholding of your family members.

 

 

How much of my pension can I withdraw as a lump sum?

 

Master Trust

You can take a lump sum up to 1.5 times final salary (if you have at least 20 years of service with your employer and are retiring at your normal retirement age). This can allow Master Trusts to  offer more flexibility when calculating retirement lump sums (potentially exceeding the 25% PRSA limit). Master Trust arrangements linked to the same employment must be taken at the same time.

 

On Death: In the event of death before retirement, if you are an active member of the Master Trust, the lump sum is limited to 4 x final remuneration plus a refund of member contributions. 

 

PRSA

You can take up to 25% of the total value of your PRSA as a tax-free lump sum. You can have multiple PRSAs, so it’s possible to split benefits into multiple PRSA’s, which is popular with members looking to phase drawdown (access at different times).

 

On Death: In the event of death before retirement, there is no lump sum limit on death in service in a PRSA. The full value of your PRSA will be paid to your estate if you die before retirement. It will also be paid to your spouse tax-free.

 

 

Key Considerations Summary

 

Consider these factors when making your decision:

 

  • Investment Expertise: Are you comfortable managing your investments, or do you prefer professional oversight?
  • Desired Flexibility: Do you prioritize flexibility at retirement (potentially with a Master Trust), or is portability across jobs more important (offered by PRSAs)?
  • Cost Sensitivity: Are fees a major concern, or are you willing to pay more for professional management?
  • Company Profitability: Do you anticipate significant company profits that could be used for tax-efficient contributions to a PRSA?

 

 

 

What do we recommend?

 

As a company director, the most suitable option really depends on your, financial situation, your individual needs, and your retirement objectives.

 

PRSA’s might be preferable for the following reasons:

 

It is simpler to set up and offers more flexibility in terms of contributions (can be stopped and restarted).

PRSAs are portable and can be easily moved from one employer to another without the need for a Trustee.

Potential for higher contribution limits.

Contribute a significant portion of company profits to reduce corporation tax and boost retirement savings via profit (cash) extraction from the company.

Later retirement age (up to 75).

Typically lower fees compared to Master Trusts.

IORP II requirements do not apply.

 

 

It is ideal if you prioritize control, cost-efficiency, portability, and maximizing contributions. Well-suited for directors who are comfortable managing investments and may change jobs in the future, or who want to make tax-efficient profit extraction from their company.

 

 

Master Trusts might be preferable for the following reasons:

 

Seeking a wider range of investment options.

Prioritizing a larger tax-free lump sum at retirement (based on salary and service).

Master trusts are typically managed by professional trustees with strong knowledge of pensions, ensuring best practices are followed.

Master trusts handle regulatory compliance and administrative tasks, freeing up the employer’s time and resources. This is especially helpful with increasingly complex pension regulations.

 

 

A good option if you value professional management, employer contributions, and potential retirement flexibility. It is suitable for directors who are less comfortable with investment decisions and have a stable employment situation.

 

If you’re aiming for a larger tax-free lump sum at retirement based on your salary and service, a Master Trust might be a better fit than a PRSA, as PRSAs only allow 25% of the fund as a tax free lump sum. This is the main reason why a company director may choose a Master Trust over a PRSA.

 

 

Financial Advice:

 

Remember: Consulting with a qualified financial advisor is highly recommended. We can assess your specific situation, risk tolerance, and retirement goals to advise you on the most suitable option for your situation.

 

Need to speak with a Financial Advisor?

Fill out your details and inquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

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PRSA Opportunities for Company Directors in 2024

Are you a Company Director or Business Owner?

 

If so, you need to consider the updated PRSA pension funding opportunities available.

 

At the beginning of January 2023, a small wording change to pensions legislation resulted in a significant opportunity for company directors and business owners to fund larger pension pots than before. Since then, an employer contribution to a Personal Retirement Savings Account (PRSA) for an employee, is no longer taxable as a Benefit-In-Kind (BIK) for that employee, which essentially means that you are not taxed on the contribution that your employer makes on your behalf.

 

In essence, this change now allows an employer to contribute to a PRSA with no upper limit on employer contributions. In fact, the only limit is the lifetime Pension Fund limit which is currently €2,000,000. This rule change will be of significant interest for business owners and directors, as it means that they can now move profits from their business into a PRSA for themselves, for employed family members, and for employees.

 

 

How is this different to before?

 

Prior to 1st January 2023, employer contributions into a PRSA were taxable as a Benefit in Kind (BIK) and could create an income tax liability for the employee if employer and employee contributions to the PRSA in the relevant year exceeded that employee’s own personal age related limits.

 

For that reason, many company directors chose a different type of pension arrangement, an Executive Pension, to fund for their retirement as those arrangements offered much greater scope to make an employer contribution into the pension scheme on their behalf. Executive Pensions were (and still are) subject to ‘funding checks’ to ensure contributions are within the generous limits.

 

 

Employer and Employee contributions and PRSA’s

 

Since January 2023, employer contributions to a PRSA no longer form part of the employees own age-related limits for pensioning their income. It is for this reason that PRSA’s now offer an alternative to Executive Pensions for Company Directors planning for their retirement and offer some new opportunities for retirement planning. Employee contributions are still subject to the age-related contribution limits and the Earnings Cap, currently €115,000.

 

PRSA Opportunities for Company Directors in 2024. Complete the form below to get advice on your options

 

 

 

Let’s explore some of the new PRSA opportunities

 

 

1. Company Directors or Business Owners on modest salaries:

PRSA Opportunities for Company Directors in 2024. Company Directors or Business Owners on modest salaries

 

Profile:

John is age 50 and married.

Retirement age: 60.

Annual salary: €20,000.

Current pension fund value: €300,000.

 

Current pension arrangement:

John is currently invested in a Master Trust Executive Pension which is subject to funding limits.

 

His Pension Advisor recently calculated John’s maximum funding limit, which allows him to fund for a total pension fund of €432,000. As he already has €300,000 saved, the maximum he can save into his pension from now until retirement is €13,200 per annum over 10 years.

 

New PRSA opportunity:

Under the new PRSA rules, John’s business can invest up to another €1,700,000 into a PRSA for him as the only PRSA limit which now applies is the lifetime limit of €2,000,000.

 

 

 

2. Family business with excess profits:

PRSA Opportunities for Company Directors in 2024. Family business with excess profits

 

Profile:

Alex and Susan are employed in the business.

David, their son, is also employed in the business.

 

Current pension arrangement:

Alex and Susan have funded Executive Pensions to €1,000,000 each and their son David has a pension fund in place of €300,000.

 

New PRSA opportunity:

Under the new PRSA rules, both Alex and Susan can fund a PRSA by an additional €1,000,000 to bring their pension funds up to €2,000,000 each. As Alex is employed in the business there is also an opportunity for the business to fund a PRSA up to the maximum lifetime limit of €2,000,000 – so an additional €1,700,000 above his current €300,000.

 

 

 

3. An Investment Company:

PRSA Opportunities for Company Directors in 2024. An Investment Company

 

Profile:

Amy holds a number of rental properties within a holding company.

She draws a salary from the business.

 

Current pension arrangement:
As a 20% Director of an Investment Company, Amy is excluded from taking out an Executive Pension.

 

New PRSA opportunity:

No such restriction has been made in respect of PRSAs, so an investment company could contribute to a PRSA for the benefit of a 20% director that is employed by that company. It’s important to note that Amy must be drawing a salary which is taxable under PAYE in order to access the PRSA route.

 

 

 

4. Company Directors who have already accessed an Executive Pension:

PRSA Opportunities for Company Directors in 2024. Company Directors who have already accessed an Executive Pension

 

Profile:

Byron funded an Executive Pension.

He accessed it last year under the Normal Retirement rules.

He still works in and owns his own business.

 

Current pension arrangement:

Byron funded an Executive Pension for €1,000,000 and took his benefits at maximum retirement age (70) last year.

 

New PRSA opportunity:

As Byron still works in the business, he can now invest up to another €1,000,000 in a PRSA policy.

 

 

 

5. Self Employed business owner with Spouse employed in the business:

PRSA Opportunities for Company Directors in 2024. Self Employed business owner with Spouse employed in the business

 

Profile:

Matt is a self-employed Accountant.

He can only save into a pension based on his personal income which will be limited by the age-related personal limits and the Earnings Cap.

However, Matt’s spouse, Fiona, is an employee in the Accountancy practice.

As Matt is her employer, he wants to provide a pension arrangement for her benefit.

 

Current pension arrangement:

Matt as the employer set up an Executive pension for Fiona . Both Matt (as Fiona’s employer) and Fiona (as employee) contribute. The employer’s ability to fund is limited by Revenue’s funding limits for Executive Pensions.

 

New PRSA opportunity:

As Fiona is Matt’s employee, Matt as the employer could fund a PRSA on her behalf with potentially no upper limit on the employer contribution possible for Fiona (other than the Employers capacity to make such a contribution and the overall lifetime limit for the maximum pension pot (Standard Fund Threshold).

 

PRSA Opportunities for Company Directors in 2024. Complete the form below to get advice on your options

 

 

Where to from here:

 

Maximizing pension funding is always high on the list for company Directors and business owners just like you. There are usually significant volumes of PRSA contributions in the months of November and December as Small and medium-sized enterprises (SMEs) close out their accounts.

 

Above we’ve provided a brief outline of the five PRSA opportunities in the marketplace right now, but this is by no means an exhaustive list. Be sure to sit down with one of our Financial Advisors to discuss your personal situation and get advice on what option best suits you and your business.

 

 

Speak with a Financial Advisor:

Fill out your details and inquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

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