A director's guide to Irish pension revolution
Pensions consultants have a critical role to play in advising company directors across Ireland that the pension landscape is undergoing its most significant transformation in a generation.
Financial advisors have a crucial role to play in guiding employers through the latest regulatory changes to pensions, writes , managing director of Insight Private Clients.
The way you save for retirement is about to change. For company directors across Ireland, the pension landscape is undergoing its most significant transformation in a generation.
This shift, driven by the EU's IORP II Directive, is aimed at making all pension schemes more secure, transparent, and professionally governed.
While its purpose is to protect all members, it has a particularly profound impact on directors who hold a traditional Executive Pension Plan. The days of the simple, self-administered scheme are ending, and the time for action is now.
This guide provides a clear overview of these changes, outlining the key choices you face, the critical deadline you must meet, and the indispensable role of a pension consultant in navigating this transition.
The IORP II Directive is a piece of European legislation designed to create a more robust framework for occupational pension schemes. It mandates stricter governance, risk management, and communication with members. For a large, multi-employer scheme, these requirements — such as appointing independent trustees and establishing a formal risk management function — are a matter of increased administration.
However, for a single-member Executive Pension Plan, where the sole director is also the sole trustee, these new requirements are practically impossible to meet. In response, The Pensions Authority, Ireland's pension regulator, has made its position clear. Since July 2022, new single-member Executive Pension Schemes have been effectively prohibited. Existing schemes were given a five-year transitional period to become compliant, but this window is now rapidly closing.
For every existing single-member Executive Pension Plan holder, 22nd April 2026 is the most critical date on the calendar. By this deadline, every scheme must either be fully compliant with IORP II or have its assets transferred to a compliant alternative.
Attempting to make a single-member scheme compliant is, for the vast majority of Irish company directors, not a viable option. The costs and administrative burden would be prohibitive.
The real choice you face, therefore, is not about compliance, but about choosing the right compliant alternative.
Failing to act by this deadline is not an option. The Pensions Authority has the power to freeze non-compliant schemes, which could lead to a loss of control over assets, increased costs, and a halt on future pension contributions. This is a scenario every director must actively work to avoid.
For an Executive Pension Plan holder, there are two primary, viable alternatives: migrating to a Master Trust or a Personal Retirement Savings Account (PRSA). The best choice for you will depend entirely on your personal circumstances, financial goals, and retirement objectives.
A Master Trust is a pension scheme that allows multiple, unrelated employers to participate under a single, professionally managed trust. The provider handles all the governance and administrative responsibilities, freeing you from these duties.
Full IORP II Compliance: The Master Trust handles all regulatory requirements, removing the administrative and fiduciary burden from you.
Professional Management: The scheme is run by professional trustees with expertise to manage it in the best interests of its members.
Higher Funding Potential: For directors who need to make significant 'catch-up' contributions, a Master Trust can be a better fit, as funding limits are based on a formula linked to salary and service.
Tax-Free Lump Sum: Master Trusts offer the same tax-free lump sum options as a traditional occupational pension scheme, which can be the 1.5 times final salary (up to a limit of €200,000) or a 25% tax-free lump sum (up to €200,000), depending on the scheme's rules and the member's circumstances.
Loss of Direct Control: While many Master Trusts offer a range of investment options, ultimate control remains with the trustees. This may not suit a director used to self-directing their investments.
Early Retirement Restrictions: To access benefits, you must fully and "bona fide" retire from the company, which can mean relinquishing shareholding—a significant consideration for owner-managers.
Fixed Retirement Age: The retirement age is typically set within the scheme's rules, often at age 70, which is less flexible than a PRSA.
A Personal Retirement Savings Account (PRSA) is a portable and highly flexible pension vehicle. It’s a contract between you and a PRSA provider, and is therefore not subject to
the same strict IORP II governance requirements as a trust-based scheme.
Simplicity and Portability: PRSAs are simple to set up and manage. Being personal to the individual, they are fully portable and can be carried from one job to the next.
Flexible Contributions: The Finance Act 2022 enhanced PRSAs by removing Benefit-in-Kind tax on employer contributions.
This allows companies to make substantial, tax-deductible contributions to your PRSA, making it a simple and tax-efficient way to save for retirement. While the Finance Act 2022 initially allowed for unlimited tax-free employer contributions, the Finance Act 2024 has introduced a new cap.
Any employer contribution to a PRSA for an employee/director that exceeds 100% of the employee's annual salary is now treated as a taxable Benefit-in-Kind (BIK). This is a crucial update as it directly impacts the ability of directors to make very large, "catch-up" contributions to a PRSA.
Flexibility at Retirement: A major advantage of a PRSA is that you can access benefits from age 60 without having to formally retire or relinquish your shareholding. This is crucial for those who wish to continue working in a part-time or consultancy role. For a director holding 20% or more of the company, accessing benefits before age 60 from an occupational pension (such as a Master Trust) requires severing all ties, including the relinquishing of shareholding. This is a key reason why many directors opt for a PRSA.
Investment Choice:
PRSAs offer a range of investment funds, including self-directed options, providing a high degree of control over how your money is invested.
Drawbacks:
Tax-Free Lump Sum: The tax-free lump sum from a PRSA is capped at 25% of the fund value. For a director with a high salary and long service, this may result in a smaller lump sum than a Master Trust.
No Property Investment: A PRSA cannot be used to invest directly in property, unlike some legacy schemes.
The complexities of IORP II and the distinct features of the alternatives mean that making a decision on your own is risky. Your pension consultant is an invaluable partner, providing expert, tailored advice essential for a successful transition.
A good pension consultant will:
Review Your Existing Scheme: They’ll analyse your current Executive Pension Plan, including its assets, investment strategy, and any unique features.
Assess Your Personal Needs: By understanding your long-term goals, risk tolerance, desired retirement age, and post-retirement company plans, they can recommend the best-fit alternative.
Explain the Options in Detail: They will clearly outline the pros and cons of both a Master Trust and a PRSA, highlighting the implications for your tax-free lump sum, retirement flexibility, and investment control.
Manage the Transition: Once a decision is made, your consultant will handle all the necessary paperwork, communicate with The Pensions Authority and the new provider, and ensure a seamless transfer of your pension assets.
This is not a time for inaction. The IORP II directive is a significant regulatory change that demands a proactive response. The 22nd April 2026 deadline is firm, and the consequences of ignoring it are too severe to risk. By engaging with your pension consultant now and making an informed decision, you can turn this regulatory change into a strategic opportunity to build a more robust, compliant, and ultimately, more effective pension plan for your future.
