Understanding Recent Changes to PRSAs: Benefits for Business Owners and Employees
Effective from January 1st, 2023, significant changes have taken place in the realm of Personal Retirement Savings Accounts (PRSAs). These updates have a positive impact on both business owners and employees, ushering in new possibilities for pension contributions and tax efficiency.
Changes in Employer Contributions
Before January 1st, 2023:
Employer pension contributions to employee PRSAs were determined based on age-related percentage limits for tax relief.
Exceeding these age-related limits led to Benefit-in-Kind (BIK) implications for employees.
The individual had to keep the overall standard fund threshold (€2 million) in mind.
From January 1st, 2023 Onwards:
Employers can now contribute to employee PRSAs without being constrained by age-related tax relief contribution limits.
Employer contributions are no longer treated as Benefit-in-Kind.
While there's no set limit on employer PRSA contributions, the €2 million standard fund threshold applies.
Impact for Employees: Simplified Tax Treatment
The changes offer a favorable outcome for employees who are saving for retirement through a PRSA. They now receive tax treatment comparable to members of occupational pension schemes concerning employer contributions. Unlike before, where employer contributions used up part of the employees' contribution scope within age-related limits, this constraint no longer applies. Employee contributions remain subject to age-related contribution limits and the Earnings Cap (currently €115,000).
Impact for Business Owners: Enhanced Flexibility
The recent modifications have sparked discussions about the implications for employer contributions to PRSAs, particularly in terms of control. As of now, the legislation doesn't impose an upper limit on employer PRSA contributions, as is seen in occupational pension schemes.
Key Points for Business Owners:
Contributions are only for registered employees with PAYE Taxation applied at source.
Factors like salary, service duration, and accrued pension benefits don't influence employer contribution capacity.
The Lifetime Pension Fund Limit (€2 million) and the employer's financial capability are the primary constraints.
Unlimited employer contributions to employee PRSAs without age-related limits.
PRSAs serve as a tax-efficient avenue for retirement funding.
Enables business owners to maximize tax relief during financially viable years.
Employers can contribute to both occupational pensions and PRSAs.
PRSAs emerge as an appealing alternative to executive pension plans and occupational pension schemes.
In conclusion, the removal of the employer contribution limits to PRSAs opens up exciting opportunities for business owners and company directors. By capitalizing on the ability to make flexible and tax efficient pension contributions, you can pave the way for a more secure and prosperous retirement.
Author: Rachel O’ Shea, QFA
Senior Consutlant & Protection Manager