Directors Retirement: PRSAs v Executive Pensions

The Irish pension system is complex and bewildering. It’s difficult to know what you should be striving for as a director, or how much time you need to put away each year in order to achieve your desired retirement income. Let’s take a look at the two most common types of directorships: PRSAs and Executive Pensions.

What’s a PRSA?

A Personal Retirement Savings Account (PRSA) is a self-employed retirement plan that can be used to maintain an income for the rest of your life after you turn 60. The PRSA is also portable and transferable, allowing you to take it with you if you decide to move overseas or start a new business.
The money in the plan is tax-neutral until retirement, which means that accumulated growth is not taxed under Capital Acquisitions Tax (CAT) or any other taxes before it is withdrawn, as would be the case with a Contractual Retirement Annuity (CRA). It also avoids probate costs because there will be no asset upon death.

Because there is no draw down, the PRSA has excellent tax efficiency. This contrasts to most personal pension plans, which tax growth each year as it grows. An intermediate-term pension provides a more flexible alternative to a lifetime annuity that may be subject to the extreme degradation of value of death benefits and encashment fees, resulting in an effective tax rate on withdrawal that can exceed 80%.

What’s an Executive Pension?

The major distinction is that pension payments are not subject to the PRSA tax imposed by Revenue.

There are no specific legal requirements for your employer to contribute or otherwise assist you in establishing an Executive Pension program – it’s conceivable that a business won’t want to. A director who has not paid into the plan may still take it as an “entitlement” at retirement.

For most people who pursue executive pensions, the goal is to produce a tax-efficient income or take advantage of “entitlements” that have accumulated throughout their career at the firm.

While some individuals may be hesitant to address these priorities until they are quite close to retirement (or have amassed enough other assets), many more will find themselves pushed into earlier access as a result of a lack of knowledge or comprehension on the part of employers and HR departments, who frequently mix up personal and executive pensions when interacting with employees.

Some advantages of Executive Pensions over PRSAs worth considering

  • Employer contributions via a Limited Company:

As an employer, tax benefits are more appealing and the maximum contributions are far greater. You can’t claim your full 40% personal contribution allowance because they’re subject to normal revenue rules that relate with age.

  • Employee tax advantages:

Where there’s also usually an earnings cap of €115,000 for personal contributions, the sky is your limit when it comes to employer-funded pension plans. Revenue allows you to build up a fund which will provide 2/3rds of your final salary as retirement income – subject only to a maximum value that has not yet been reached and can be left intact without any penalty on death or withdrawal.

  • Taking your benefits earlier:

If you’re seeking for an early retirement option, the Executive Pension Scheme may be worth exploring. Age 50 onwards (provided that employment has terminated) and poor health are additional reasons why someone might be able to collect their pension sooner than expected. The typical age to receive funding in this plan is 60 years old or older, but if these requirements are met, earlier withdrawals are feasible as well!

Example Client

A referral who was also a new client had already done some research and wanted to start their own Personal Retirement Savings Account (PRSA) as soon as possible.

They were hesitant about retirement approaching and that they were late in starting, but the tax benefits accessible to individuals their age group (25%), it appeared like an opportunity not worth passing up!

This was one little step forward that might assist them save money longer in retirement given the fact that they were running out of time until their objective of retiring at 60 years old.
The customer was informed that a meeting would be set up and at the end of the meeting, Bernard requested further information regarding their employment status from them.

Both clients were Company Directors, having launched their successful Limited Company 5 years earlier. They each made €40,000 p.a.

We advised them that if they used their company structure to fund a pension for both of them, it would have no impact on their Net Pay.
 PRSAExecutive Pension (via Company Structure)
Maximum Allowed for Tax Purposes€10,000 for him


€10,000 for her

€72,000 for him


€53,000 for her


Who pays the contributionThem from their personal bank account 



The company as an allowable expense





What Tax relief is available to the individuals


Depends on their Personal Tax Rate but up to 40% 


No effect on their personal tax affairs as the company is paying contributions

When can the funds be accessed



Between ages 60 & 75



Between the ages of 60 & 70



How much can be taken tax free



Up to 25% of the Pension Value or €200,000 whichever is higher



Up to 25% of the Pension Value or €200,000 whichever is higher



What happens the balance



Used to purchase a guaranteed income or invested in a Post Retirement Policy



Used to purchase a guaranteed income or invested in a Post Retirement Policy
As you can see by exploring the options via working with us, the clients could:

1. increase their future pension provision greatly each year from a possible €20,000 to €125,000 p.a. if their budget allowed

2. Have no reduction in their Take Home Pay

3. Use their business assets to build their future personal assets, “converting the company wealth to personal wealth”

4. Have the same options from age 60 regardless of the structure used based on the current pension rules.

If you’re a business director and aren’t sure if any of these circumstances apply to your company setup, please email me at [email protected] with any queries regarding your pension requirements or call 087 2872206 to talk.