Oireachtas Finance Committee – PRSA’s Under Review

Oireachtas Finance Committee – PRSA’s Under Review

Upon release of the Finance Act 2022, we reported that the finance bill had removed benefit-in-kind (BIK) on employer contributions to a pension pot (or  PRSA) that had previously been in place.

What changed with Finance Act 2022?

Until this legislative update, company directors faced limitations on employer pension contributions (to an executive pension scheme). These contributions were tied to their salary and years of service within the company. For instance, to amass a maximum pension fund of €2 million, a director needed a salary of €100,000 and ten years of service. This requirement often led directors to inflate their salaries beyond their actual needs to justify larger pension contributions.

With the enactment of the Finance Act 2022, these constraints have been lifted. Employer contributions to Personal Retirement Savings Accounts (PRSAs) are now free from the BIK charge and are no longer tied to the employee’s salary.

The removal of the cap on contributions means that company directors, business owners, and key employees can now receive unlimited contributions to their PRSAs, significantly enhancing their ability to plan for retirement.

PRSA’s under the spotlight.

At the Oireachtas finance committee last week (May 2024), Pearse Doherty queried how the amendment to the above Finance Act was working out. Revenue Commissioner chairman Niall Cody told the Sinn Féin’s finance spokesman, “I would be concerned. I am concerned”. He said that this “concern has been shared” with the Department of Finance.

According to the Irish Times, Mr Doherty said that under the measure, company directors can put more than €2 million into a pension in a single year without paying any tax on it, which could also be used to reduce a firm’s corporation tax bill in the process.

Mr. Doherty described the matter as a “massive loophole in our tax system” that is “being exploited by the wealthiest in our society”.

The Department of Finance is monitoring the implementation of these changes closely.

What does it mean for me?

For now, employer contributions to Personal Retirement Savings Accounts (PRSAs) are free from the BIK charge and company directors, business owners, and key employees can still receive unlimited contributions to their PRSAs. However, PRSA’s are very much under the spotlight and the window of opportunity may be closing.

I want to know more.

If you would like to discuss your options or have any queries at all we recommend that you do the following:

Contact your financial planner to discuss the above and update your financial plan.

Get independent tax advice from a qualified tax adviser, there is no cap on what you can put into a PRSA but there may be other things you need to consider such as corporation tax relief, entrepreneurs’ relief etc.

If you’d like to talk through the details and understand how the changes to pension rules could benefit from you, please don’t hesitate to give us a call on 01 908 1500 or email us at info@metisireland.ie.

Simon Ross

Financial Planning Executive