BIG Pension Changes : PRSA and Employer Contributions

BIG Pension Changes : PRSA and Employer Contributions

PRSA and Employer Contributions

Before Jan 2023, any employer contributions to an employee’s PRSA were treated as Benefit in Kind (BIK), unless the employee had not already used up their personal contribution limits, after which they could facilitate non-BIK employer contributions. Now, since the 1st January 2023, there is no limit on employer contributions to an employee’s PRSA.

It’s very important though to note that the standard fund threshold of €2m still applies.

Whilst earlier in the year there were concerns over whether this would be available in the long run, Chapter 24.3 of the Revenue Manual has been updated to confirm the allowance of such PRSA contributions. This means that employees are free where possible to fund their full allowance of personal contributions but also receive an employer contribution and not be penalised with BIK.

Personal Pension Contributions

No change was made to the age-related limits:

NOTES:

An earnings cap of €115,000 applies to contributions. Pension contributions made by you in 2022 must be deducted from the maximum tax-allowable contribution calculated based on these limits.
Age is age on your birthday in 2022.
Retirement benefits are subject to separate Revenue limits.
Reference to ‘Tax’ refers to ‘Income Tax’.

Key Benefits of the PRSA

Some of the existing key benefits of PRSAs include:

  • There is no requirement to seek individual approval from Revenue on establishing a PRSA.

  • Any employee who is working and in receipt of Schedule E income can now receive unlimited employer contributions that are not subject to the normal maximum funding rules

  • Under the PRSA there are no ordinary annual or special contributions. This means that contributions in a tax year can be claimed in full for the chargeable period and don’t need to be spread across multiple years.

  • The normal retirement age on a PRSA can be 75 giving more time before the benefits must be accessed.

  • Individuals don’t need to stay in employment to allow the benefits to remain in the PRSA until 75.

  • For 20% directors, no requirement to sell shareholding and completely sever ties with the company. They are only required to stop being a Schedule E employee and take a salary.

  • The PRSA can be split into multiple PRSAs to stagger retirement and the amounts taken over time.

  • The full value of the PRSA is paid to the estate tax free, unlike an occupational pension that is subject to the four times final salary rule.