What is changing for PRSAs?

From the 1^st January 2023 there are changes to PRSAs:

• An employer can contribute to an employee PRSA PRSA Pension without taking into account the age-related tax relief contribution limits.
• Employer contributions to a PRSA are no longer treated as benefit in kind (BIK).
• There is no limit on employer contributions to an employee’s PRSA. However, the overall standard fund threshold for an individual of €2m applies.

Prior to 1^st January 2023:

• Employer pension contributions to an employee PRSA were calculated based on the age-related percentage limit for tax relief on pension contributions.
• If a company made a contribution to an employee’s PRSA which exceeded these age-related limits, the employee would be liable for BIK.
• The employee needed to consider the overall standard fund threshold of €2m.

Who can benefit from the recent changes to the pension legislation?

Impact for employees:

For ordinary employees saving for retirement in a Personal Retirement Savings Account (PRSA) this is a positive change. They will now be given the same tax treatment as occupational pension scheme members in relation to any employer contributions to their pension scheme. Employees making their own contributions to a PRSA Pension

Previously where an employer paid into the PRSA, that employer contribution used up part of the employees’ own scope within their age-related limits to pension their income. This is no longer the case. Employee contributions are still subject to the age-related contribution limits and the Earnings Cap (currently €115,000).

Impact for business owners:

The changes have led to much discussion as to what it means for employer contributions to a PRSA, particularly in terms of how they are controlled. Currently our interpretation is that the legislation does not place any upper limit on an employer contribution to a PRSA as would exist in occupational pension schemes under the Revenue guidance for Ordinary Annual and Special Contributions.

An employer can only make a contribution to a PRSA for an Employee. To be specific, that is someone who is registered as an employee of that entity and receiving a salary under Schedule E with PAYE Taxation applied at source. However thereafter the level of salary paid, service to date and level of pension benefits already accrued are not factored into the ability of that employer to contribute to the PRSA. There is no maximum funding calculation to determine the ability of the employer to contribute as would exist within occupational pension schemes.

The only limits now seem to relate to the Lifetime Pension Fund Limit (Standard Fund Threshold, currently €2m) – and the employer’s capacity to fund a significant contribution and the profits/corresponding tax that the employer is paying. We have no specific guidance as to how an employer would seek tax relief on such a contribution, however the current interpretation by the industry of the legislation is that it appears these contributions will be allowed as an expense in the year in which they are paid (with no upper limit).

How can business owners and employees benefit from these changes?

• Companies can contribute as much as they want to an employee PRSA without age related limits, while still considering the overall standard fund threshold of €2m.
• PRSAs may be attractive as business owners can use a PRSA to fund for their retirement; PRSAs should be a tax efficient way to accumulate these funds.
• It allows business owners, who may not be able to afford pension contributions in certain years, to maximise their tax relief in the years they can.
• The company can contribute to both an occupational pension and a PRSA for an employee.
• This change makes PRSAs an attractive option to executive pension plans and occupational pension schemes.

The information contained herein is based on Zurich Life’s Zurich life understanding of current Revenue practice as at 1st May 2023 and may change in the future.

Standard PRSAs invest only in pooled funds where the risk is spread across a large number and variety of investments. Non-Standard PRSAs can offer wider investment choices. However, you need to be sure that you understand the investment choices and the reasons why you should choose them. If you do not understand how your pension will be invested, then you should consider if this product is best for you.

If you are considering whether to invest in a PRSA, you should ask yourself the following questions.

Is there an existing pension scheme available to me in my job?

If not, you should consider making provision for your retirement and a PRSA may be the option for you. If you already have a good pension arrangement, you may not need to make any additional provision, or you may be able to top up your benefits by making Additional Voluntary Contributions (AVCs). If there is no AVC facility, your employer must provide access to a PRSA.

Should I start a PRSA if I already have a personal pension plan?

You should seek professional advice based on your circumstances. Contact a broker or your pension provider for more information.

Do I need a PRSA if I already have a defined benefit scheme?

Defined benefit pension schemes promise a pension related to your salary (for example, two-thirds of final salary on retirement). You may not need to make any further pension provisions if you have this type of pension. Transferring from a defined benefit scheme into a PRSA involves a risk so you will need to assess your financial position and weigh up the advantages and disadvantages.

Do I need a PRSA if I have a defined contribution scheme?

A defined contribution scheme is also based on investment and has an investment risk – your pension will depend on the contributions you make, together with the investment performance of your fund, less any charges. If your employer is making a contribution to your existing scheme, you should find out whether this will continue if you transfer to a PRSA.

PRSA providers cannot require a minimum contribution of over:

• €300 a year
• €10 for each electronic transaction
• €50 for each other transaction

You can stop, start, increase and decrease your contributions at any time, without charge. However, a PRSA provider may require notice of a change.

Contributions received by PRSA providers must be held in a custodian account.

You should get a statement of account every 6 months showing your contributions (and any by your employer) and the transfer value of your PRSA.

Contributions to PRSAs are disregarded from assessment in means-tested social welfare schemes except Supplementary Welfare Schemes.