IF PROFESSIONALS OR SOLE TRADERS WANT TO FUND FOR RETIREMENT
WHAT SHOULD THEY DO?

The recent Finance Act 2011 makes bewildering reading for sole traders and professionals who rely primarily on private earnings to fund for retirement. So-called high earning self-employed individuals be they doctors, dentists, GPs, accountants, legal practitioners or trades-people, are now limited to making pension contributions from income up to €115k pa. So, from a pension funding perspective €115k pa is the new rich!

Furthermore, any other pensionable income (such as employment income) makes up the first part of this €115k cap, resulting in little, or indeed no, scope for pension funding on sole trader income.

To add to the pain, the new Universal Social Charge (USC) is now payable on all Self-employed income over €16,016 @ 7% and @ 10% for earnings over €100,000 pa. (with no deduction for pension contributions). With
the State Contributory Pension retirement age being pushed out to 68 from 2028, dreams of alternative property-based retirement plans are evaporating - it's very clear that there's a long working road ahead of us all.

The question that should be asked by every self-employed high-earner is simple:

WHAT STEPS CAN I TAKE TO FUND A DECENT RETIREMENT LIFESTYLE (AND BEFORE I REACH 68)?

A preferred solution
Many professionals within the private sector fund their pension schemes predominantly by employer paid contributions and can fund annual pensions for directors / employees up to 2/3rds of pre-retirement earnings.

Employer funding
The benefits of employer pension-funding are simple and fundamental

• Employer paid pension contributions are exempt from benefit-in-kind, resulting in no PRSI and USC liability.
• €115,000 earnings ceiling does not apply to employer paid contributions.
• Employer-funded schemes may produce much higher levels of retirement benefits of up to the €2.3M threshold.

The key focus must now be to ensure that pension funding, where possible, is made by way of employer contributions, rather than by employee or self-employed funding.

Recommendation
Carry out a Structural Review
One way of achieving this benefit is to review and assess the merits of incorporation. Incorporation may not be feasible, nor the best answer for all professionals. None the less, incorporation can provide significant other benefits. Pension funding and not being required to pay a 55% combined tax rate, genuinely make a difference.

Call us if you wish to discuss this further.