As the deadline for Revenue Tax nears, many are looking for strategies to reduce their tax liabilities. One of the most effective methods remains tax relief on pension contributions. In light of this, we’ve compiled a comprehensive overview of the recent amendments made to the PRSA and its associated advantages.
PRSA and Contributions from Employers:
Up until January 2023, employer’s contributions to an employee’s PRSA were classified as Benefit in Kind (BIK), except in instances where an employee hadn’t exhausted their personal contribution caps, allowing for non-BIK employer contributions. However, from 1st January 2023 onwards, there is no ceiling on employer contributions to an employee’s PRSA.
It’s crucial to recognize that the standard fund threshold of €2m remains intact.
Despite initial uncertainties about the sustainability of this adjustment, Chapter 24.3 of the Revenue Manual has since been revised to validate these PRSA contributions. This signifies that employees can not only maximize their personal contribution allowance but can also receive contributions from their employer without the imposition of BIK.
PRSA’s Salient Features
Here are some pivotal features of PRSAs:
- Setting up a PRSA doesn’t necessitate individual approval from Revenue.
- Any employed individual with Schedule E income is now eligible for unlimited employer contributions, exempt from standard maximum funding stipulations.
- With PRSAs, there’s no mandate for regular yearly or special contributions. Hence, contributions within a tax year can be fully claimed during the taxable period, without spanning multiple years.
- The default retirement age for a PRSA can extend up to 75, allowing more flexibility before accessing the benefits.
- One doesn’t need continuous employment to retain the benefits in the PRSA up to age 75.
- PRSAs allow for early retirement from age 50 under specific conditions.
- For directors with a 20% share, there’s no obligation to divest their shares or entirely disassociate from the company. They simply need to terminate their status as a Schedule E employee and cease receiving a salary.
- PRSAs can be segmented, facilitating a phased retirement approach, thus distributing the amounts taken over intervals.
- In case of death, the entire PRSA value is conveyed to the estate without tax, as opposed to occupational pensions subjected to the four times final salary regulation.
- PRSAs remain unaffected by IORP II investment constraints, which previously capped unregulated investments at 50% of the scheme value and placed limitations on pension loans.
- There are a wide number of investment options available.