PENSIONS

Executive Pension Plan

Your retirement might still be some years away, but it’s always wise to begin planning early

Director / Executive Pension Plan (EPP)

An Executive Pension Plan (EPP) is an employer-sponsored occupational pension arranged on a defined contribution basis. It is typically set up to provide retirement benefits for selected directors or senior employees, rather than the wider workforce.

The scheme is established by the employer and funded primarily through employer contributions, although members may also make personal payments if the scheme rules allow. Contributions are invested with the aim of building a tax-efficient retirement fund over time.

Governance and structure

Executive Pension Plans are set up under a trust. Trustees are appointed to oversee the scheme’s operation and ensure it is administered correctly. Their responsibilities include monitoring contributions, maintaining compliance with pension legislation, and ensuring benefits are paid accurately and on time.

From an employer’s perspective, an EPP can form part of a targeted remuneration and retention strategy, offering a valuable long-term incentive for key individuals.

Employer advantages

There are several financial benefits for employers using an EPP:

Employer contributions are normally treated as an allowable business expense and can be deducted against corporation tax, provided they are wholly and exclusively for the purposes of the business.

Contributions paid into the scheme are not subject to employer or employee National Insurance Contributions, making them a more tax-efficient alternative to additional salary or bonuses.

Benefits for members

For the individual member, an EPP offers the standard advantages associated with defined contribution pensions:

Personal contributions qualify for tax relief, subject to prevailing pension allowances.
Investment growth within the scheme is generally free from income tax and capital gains tax.

When benefits are taken, up to 25% of the pension fund can usually be withdrawn as a tax-free lump sum.

The remaining balance can be used flexibly, either to secure a guaranteed income for life through an annuity or to remain invested while drawing income as required via flexi-access drawdown.

Contributions, investments, and access to benefits

The level of investment choice available within an EPP varies by scheme, but members typically have some ability to select or influence how their funds are invested. As with all investments, the value of the pension fund can rise or fall.
All contributions and benefits are subject to pension limits, including the Annual Allowance.

If the member has already accessed pension benefits flexibly elsewhere, the Money Purchase Annual Allowance (MPAA) may also apply.

Benefits can normally be accessed from age 55, increasing to 57 from April 2028, allowing members to align retirement planning with personal goals rather than a fixed company retirement age, subject to scheme rules.

THE VALUE OF PENSIONS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED. TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.