Money Talks: I'm a 45-year-old dentist, should I drill into retirement planning now?

If you're starting a pension, there are advantages of being a company director, writes Carol Brick, Managing Director at
Money Talks: I'm a 45-year-old dentist, should I drill into retirement planning now?

Money Talks: I am a 45-year-old dentist with no pension provisions in place. Can you please advise about a pension plan?

I am a 45-year-old dentist earning approximately €80,000 per annum. Having always been a sole trader, I have just set up my own limited company. I have no pension provisions at all in place and have heard there are distinct advantages attached to being a director in terms of pension funding. Can you please advise as I would like to get started as soon as possible?

The good news is that as a company director, there are indeed some major advantages when it comes to pension funding. Setting up a director’s pension will allow your company to consistently build a retirement fund by facilitating the tax-efficient transfer of cash directly from your company’s bank account to a revenue-approved pension scheme.

The first major benefit to you compared to a personal pension arrangement is the higher scope for contributions. Personal contributions to a pension are subject to strict revenue limits based on your age. With an executive pension, there are several factors that determine the maximum allowable contributions. These include salary, age, number of years’ service with the company, and the value of existing pension benefits. However overall, even though there are additional factors that are taken into consideration, because of your age and the fact that you have no major existing pension benefits in place, you will be allowed to contribute much more to an executive scheme

While the net relevant earnings limit for pension funding on ‘employee’ (personal contributions) is €115,000, there is no such restriction on ‘employer’ contributions. Revenue allows funding for a pension of up to two-thirds of final salary, to a maximum fund value of €2m.

Another advantage that is relevant in your case is the ability to pay a personal lump-sum contribution to plug the gap that exists in your overall pension funding plan. Such additional voluntary contributions (AVCs) are paid from your net income, and you can then claim tax relief at your marginal rate of tax, subject to certain revenue limits

There are also several distinct tax benefits available to company directors, including the fact that your contributions are exempt from benefit in kind and deductible for corporation tax as a legitimate business expense. The company contributions are also exempt from PAYE, PRSI, and USC and, to top it all off, the pension fund also benefits from tax-free growth

There are also more options in relation to both when and how you draw down your fund. You can retire from age 50, at which stage you are entitled to take a lump sum of 25% of the fund value, tax-free up to the lifetime limit of €200,000, and the balance of your fund used to purchase a post-retirement product in the form of an ARF or annuity, which is used to take a regular income in retirement.

The second option is to take a tax-free lump sum using a calculation based on your final salary and years’ service, to a maximum of 1.5 times the final salary. The only restriction on this option is that the balance of the fund must then be used to purchase an annuity unless you have satisfied the requirement of having a guaranteed income of €12,700 from other sources.

In summary, there are huge benefits available to you between the generous scope for funding, tax relief on contributions, and options to plan for a tax-effective lump sum and post-retirement income. Pension funding is so easy to put on the long finger, but I would urge you to prioritise your retirement planning now and always seek independent financial advice.

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