Changes to PRSA funding limits

S

Steven Barrett

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From 1 January 2025, the cap on employer paid PRSA contributions is capped at 100% salary. Any payments over this amount is treated as BIK.

The unlimited contribution rule lasted just 2 years but greed took over for a small number of people (both advisors and their clients) who pushed things by giving family members nominal salaries and massive pension contributions. The salary related cap is a clear signal that this is the reason for the cap.

The people this will hit most is company directors who have reduced their salaries after debts are paid off and families raised. Now they want to concentrate on pension funding. In many cases, these directors are behind in pension funding as they spent years growing their business.

I had thought they would adopt the same funding checks that are in place for master trusts. It will now be a case by case basis on whether a PRSA or a Master Trust is the best vehicle for someone's pension.

At least all these complications will keep me in a job for a bit longer!!


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Hi Steven,
In this case, would the Salary amount be calculated per the calendar year or per the companies financial year? i.e. if calendar year, should there be a rush to get money into PRSA before the end of 2024?
 
Okokokoknic said:
Hi Steven,
In this case, would the Salary amount be calculated per the calendar year or per the companies financial year? i.e. if calendar year, should there be a rush to get money into PRSA before the end of 2024?
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It is in the year of assessment. If a company director (it is almost always company directors) want to make large pension contributions, it should be before 31 December 2024.

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Steven Barrett said:
From 1 January 2025, the cap on employer paid PRSA contributions is capped at 100% salary. Any payments over this amount is treated as BIK.

The unlimited contribution rule lasted just 2 years but greed took over for a small number of people (both advisors and their clients) who pushed things by giving family members nominal salaries and massive pension contributions. The salary related cap is a clear signal that this is the reason for the cap.

The people this will hit most is company directors who have reduced their salaries after debts are paid off and families raised. Now they want to concentrate on pension funding. In many cases, these directors are behind in pension funding as they spent years growing their business.

I had thought they would adopt the same funding checks that are in place for master trusts. It will now be a case by case basis on whether a PRSA or a Master Trust is the best vehicle for someone's pension.

At least all these complications will keep me in a job for a bit longer!!


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
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Thanks for the update.

Still better than PAYE workers/employees can contribute though.

The 115,000 euro cap (with maximum of 40%) has been fixed for far too long now.
 
Gordon Gekko said:
It’s emoluments, isn’t it? So salary, bonus, the works?
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I would expect though, if one was at a limit, e.g. where 150,000 was available for Salary & Pension, the employer could contribute 75K to the Pension, and then the employee could choose to contribute a portion of their 75K as an employee contribution, albeit subject to USC & PRSI.
 
I think it’s fair to say that it ignores the reality for many business owners. Which is to invest in the business in the early years and to then think about retirement planning later on.

There should be no restrictions other than the SFT. It’s a cap in itself.

If someone wants to put €1m in, fine. There’s an overarching constraint.
 
Gordon Gekko said:
I think it’s fair to say that it ignores the reality for many business owners. Which is to invest in the business in the early years and to then think about retirement planning later on.

There should be no restrictions other than the SFT. It’s a cap in itself.

If someone wants to put €1m in, fine. There’s an overarching constraint.
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Agreed but there should be some rules to get around abuses, like where Son of Daddy Owner gets a part-time job in Daddy's Company on minimum wage and a €500,000 PRSA contribution.
 
Agreed LD, big difference from someone late to the pension game and catching up vs someone taking the proverbial.

We have age-related limits on employee contributions, would have liked to see something similar introduced instead of the blanket 100%.
 
Okokokoknic said:
Agreed LD, big difference from someone late to the pension game and catching up vs someone taking the proverbial.

We have age-related limits on employee contributions, would have liked to see something similar introduced instead of the blanket 100%.
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We've also had limits on employer contributions to Occupational Pension Schemes based on salary and service, for decades, which in practice allowed someone starting late-career to put in far more than someone starting earlier. Why the powers that be didn't decide to simply copy these limits across for PRSAs is beyond me. Now a client and/or their broker has to do two different calculations to figure out whether an Occupational Pension Scheme or a PRSA would be better for them.
 
The salary and service calcs/rules should be applied. So some guy or girl earning €100k a year for the last 15 years can lob a seven figure sum in.

But arguably someone should also be allowed to ‘salary sacrifice’ a bonus into their pension.
 
Gordon Gekko said:
But arguably someone should also be allowed to ‘salary sacrifice’ a bonus into their pension.
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I understand the logic behind the salary sacrifice rules, even if I don't agree with them existing at all. If someone has the ability to direct their employer to put a sum of money either into their pension or into their salary, then in effect it's not really an "employer contribution" but can more accurately be described as an employee contribution, as the employee decided how to use the money available to them. So the rules around employee contribution apply.

That said, at a higher level, I think that the whole distinction between employer and employee contributions should be scrapped anyway. How's this for simplification: -

  • Apply the existing "salary and service" rules to ALL pension contributions, regardless of whether they're coming from employer, employee, AVCs and also to Personal Pensions, PRSAs for the self-employed sole traders and partners. Same rules for everyone, regardless of the form of their employment. Scrap the age-related tax relief limits.
  • SFT of €2 million (soon to be increased) remains.
 
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LDFerguson said:
I understand the logic behind the salary sacrifice rules, even if I don't agree with them existing at all. If someone has the ability to direct their employer to put a sum of money either into their pension or into their salary, then in effect it's not really an "employer contribution" but can more accurately be described as an employee contribution, as the employee decided how to use the money available to them. So the rules around employee contribution apply.

That said, at a higher level, I think that the whole distinction between employer and employee contributions should be scrapped anyway. How's this for simplification: -

  • Apply the existing "salary and service" rules to ALL pension contributions, regardless of whether they're coming from employer, employee, AVCs and also to Personal Pensions, PRSAs for the self-employed sole traders and partners. Same rules for everyone, regardless of the form of their employment. Scrap the age-related tax relief limits.
  • SFT of €2 million (soon to be increased) remains.
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Yes to 1, no to 2…
 
I suppose that's a debate to be had. At what level do the Government say "we've supported this person's retirement saving enough - anything above this doesn't benefit from tax relief". I suspect you'd get a massive range of opinions on "how much is enough?"

I'm okay with €2 million. Take €500K lump sum. €1.5 million left over. €70,000 a year pension + €14,000 State pension. No mortgage. Kids paid for.
 
Can someone explain the year of assesment for proprietary directors with this ?

Proprietary directors are taxed like employees under the PAYE system where the employer deducts taxes at source Via the Rpn when operating payroll

So it needs to be monitored in real time for BIK to actually be applied

Eg

let's say a director in 2024's company has 100k in sales invoices
Gross Salary taken :50k
Employer pension contributions to prsa :50k

In 2025, is the new rule saying the maximum limit is 50k (based on the salary from the previous year)

OR

Is it 100% limit of whatever is taken as salary per week/biweekly/monthly in 2025 in real time?

Eg

if a director takes salary of 4000 a month in 2025, is the max employee contribution 4000k to match?

OR

Salary of 4k and

Employer prsa limit of 4166(50k/12 months) because that was the salary in 2024?
 
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