Director/Executive Pension Plan (EPP)

Executive Pension Plans (EPP) is simply a company pension scheme your employer sets up to enable you and a small number of your colleagues to save for retirement. It works equally well in a small company, or as a separate scheme for groups of senior staff or directors. The employer and sometimes the employee pays into the plan, to build a tax-efficient fund, which is used at retirement to provide tax free cash and a pension income. In effect, EPPs are money purchase occupational pension schemes and operate for the most part like any other pension scheme.

EPPs are normally established by company directors or other valued employees for their own benefit, though only the favoured can expect to be given the levels of investment that these schemes offer.

From an employer’s perspective, an EPP can form the core of a benefits package to attract, motivate and reward key executives, plus the financial benefits of contributions being allowable as a business expense and able to be set against taxable profits. Furthermore, there is no NIC liability and so extra pension contributions into an EPP can be made instead of salary increases.

The pension fund is set up under trust, with the trustees responsible for the trust’s day-to-day administration, such as ensuring contributions are paid regularly and benefits are paid out promptly.

It is also appealing to company directors and senior executives as rules allow that any funding which is made into a scheme may be made available to the sponsoring employer company in loan facilities.  This is called Loan back where the EPP can lend money commercially to your business.

EPPs are about control.  You control the retirement date, the contribution levels and investment choice.  It is a separate scheme from any scheme that you may choose to run for employees and therefore, it is confidential.

For the individual, there is flexibility of retirement, allowing the person to retire early and hand over to others (although benefits can only be taken from age of 55 or 57 from 6 April 2028) or to work well past the company’s normal retirement date.