Finance Bill 2022: unlimited employer contributions to PRSAs permitted from 2023?

A quick update on this following a very good tax seminar this morning from KTA.

  • Taxation of Foreign pension lump sums is now in legislation
  • Provided a foreign pension is materially the same as an Irish pension then lump sums can be taken subject to Irish taxation rules. Irish pensions and foreign pensions are aggregated for this purpose.
  • Less clear for US Pensions such as an IRA.

PRSAs
  • Yes, employer contributions are uncapped BUT definition of employer relationship is different (less wide) for a PRSA compared to an occupational scheme
  • Revenue challenges likely around salary sacrifice - existing legislation in place
  • Employer employee relationship - contract, pay slips defined duties and timesheets all support this
  • “For the benefit of the trade” - proportionality test (especially for contributions for spouse/children )
  • "worst" case revenue don't allow deduction for company and cost is 12.5% tax
  • For a sole trader this could be as much as 55%
Malta
  • Overseas transfers are still viable
  • Lump sum now clearly will be taxed under new legislation
  • however no imputed distributions
  • Payment of death benefit to spouse tax free rather than inherit an ARF
  • Probably avoid a future pension levy situation
  • No PAYE exclusion issue as is the case if moving abroad with an ARF

note you can’t transfer a PRSA overseas but you can transfer an occupational scheme including a Master Trust
 
Revenue challenges likely around salary sacrifice - existing legislation in place
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What does this mean? If Revenue see you dropping you salary to make massive pension payments instead they will potentially not allow it?
 
flyingfolly said:
What does this mean? If Revenue see you dropping you salary to make massive pension payments instead they will potentially not allow it?
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At present, if Revenue see you dropping your salary and replacing it with an employer contribution into a pension scheme, they will treat the employer contribution as if it was a personal contribution, so age-related limits for tax relief and salary cap of €115,000 will apply.
 
LDFerguson said:
At present, if Revenue see you dropping your salary and replacing it with an employer contribution into a pension scheme, they will treat the employer contribution as if it was a personal contribution, so age-related limits for tax relief and salary cap of €115,000 will apply.
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Interesting. Is there a limit how long they want you to wait before reducing salary and increasing contribution?
 
flyingfolly said:
Interesting. Is there a limit how long they want you to wait before reducing salary and increasing contribution?
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Revenue's own words on the matter are..."Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer."

I'm not aware of this being time-limited.
 
I believe there was a suggestion that the employer contribution to a PRSA would not count towards the age related contribution limit given that the employer contribution is not limited. Does anyone know if that is the case?

Thanks...
 
LDFerguson said:
Revenue's own words on the matter are..."Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer."

I'm not aware of this being time-limited.
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Hi Liam,
If an employees renumeration is on the low low side and a large contribution is made to the PRSA, how is this viewed by revenue?? No salary surrender.
 
Designjet said:
Hi Liam,
If an employees renumeration is on the low low side and a large contribution is made to the PRSA, how is this viewed by revenue?? No salary surrender.
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Let’s say you have a salary of €30k and no pension contribution. If you don’t change it and the employer puts €100k into your pension that’s not salary sacrifice.

Whereas if you have a salary of €100k and you drop it to €30k and the employer pays €70k into a pension then that’s salary sacrifice

Where this works well for most employees is if a discretionary bonus is payable.

Don’t take it as salary ask the employer to pay it directly to your pension instead.
If they can’t be bothered remind them that they will also save up to 11.05% employer PRSI
 
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Salary sacrifice is based around your employment contract. If you have a contracted bonus and you ask your employer to pay it into your pension = salary sacrifice. If your employer makes a discretionary bonus that is not contracted and it goes into your pension instead, not salary sacrifice.

If you ask for your pay to be reduced and redirected into a pension, get a new contract of employment reflecting the new situation.
 
Marc said:
Let’s say you have a salary of €30k and no pension contribution. If you don’t change it and the employer puts €100k into your pension that’s not salary sacrifice.

Whereas if you have a salary of €100k and you drop it to €30k and the employer pays €70k into a pension then that’s salary sacrifice

Where this works well for most employees is if a discretionary bonus is payable.

Don’t take it as salary ask the employer to pay it directly to your pension instead.
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Steven Barrett said:
Salary sacrifice is based around your employment contract. If you have a contracted bonus and you ask your employer to pay it into your pension = salary sacrifice. If your employer makes a discretionary bonus that is not contracted and it goes into your pension instead, not salary sacrifice.

If you ask for your pay to be reduced and redirected into a pension, get a new contract of employment reflecting the new situation.
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Revenue guidance on salary sacrifice arrangements:

Example 7: Joan receives a 'discretionary employer contribution' of €3500 - the example continues to show this DOES come out of the age-related percentage of the individual’s total income.

It precedes this by saying:

Remuneration is not restricted solely to cash remuneration, but includes all forms of remuneration arising from the holding of an office or employment. This includes bonus payments and any form of discretionary payment.... This treatment applies...by way of any of the following arrangements: changing the existing terms or contract of employment or creating new terms or a new contract of employment....
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So my read is that a discretionary bonus is salary sacrifice and any change in contract of employment must be bona fide such as on promotion or something i.e. the role changing not just adjusting the remuneration part as there would be an entitlement to exchange that part for cash otherwise.
 
Itchy said:

Revenue guidance on salary sacrifice arrangements:

Example 7: Joan receives a 'discretionary employer contribution' of €3500 - the example continues to show this DOES come out of the age-related percentage of the individual’s total income.

It precedes this by saying:



So my read is that a discretionary bonus is salary sacrifice and any change in contract of employment must be bona fide such as on promotion or something i.e. the role changing not just adjusting the remuneration part as there would be an entitlement to exchange that part for cash otherwise.
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The removal of the BIK came in to effect in January and the revenue pensions manual was updated in March this year. That guidance from November 2022 might be out of date now.
 
3CC said:
I believe there was a suggestion that the employer contribution to a PRSA would not count towards the age related contribution limit given that the employer contribution is not limited. Does anyone know if that is the case?

Thanks...
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Employer PRSA contributions are no longer counted towards your age-related contribution limits from 2023 tax year onwards.
 
Apropos of this thread:

Is there a good Beginner's guide to self-employed pensions anywhere?

I had a look for this to send to a friend but couldn't find it. I want to say : Take out a PRSA or a Retirement Annuity contract Here is the fund you should buy - it is 100% equities and has the following low charges Take it out Execution only via x , y or z Is there a good one available...
www.askaboutmoney.com
can a self-employed individual avail of this pension largesse?
A sole trader?
A sole owner of a limited company?
Other?
 
ClubMan said:
A sole trader?
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No.

ClubMan said:
A sole owner of a limited company?
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Yes - the company can make unlimited contributions.

ClubMan said:
Other?
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A PAYE employee who doesn't own or control the company can avail, but only if his/her employer is willing to make the contributions as employer contributions, without engaging in salary sacrifice, which is forbidden.

An employee of a sole trader or a partnership can avail if they are a PAYE employee of the sole trader or partnership, as distinct from being a partner who is effectively self-employed.
 
can a self-employed individual avail of this pension largesse?
A sole trader?

Yes, you could employ spouse and then can make contributions to their pension.

Or incorporate as a LTD company
 
LDFerguson said:
No.

Yes - the company can make unlimited contributions.

A PAYE employee who doesn't own or control the company can avail, but only if his/her employer is willing to make the contributions as employer contributions, without engaging in salary sacrifice, which is forbidden.

An employee of a sole trader or a partnership can avail if they are a PAYE employee of the sole trader or partnership, as distinct from being a partner who is effectively self-employed.
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Thanks a lot @LDFerguson.
Marc said:
can a self-employed individual avail of this pension largesse?
A sole trader?

Yes, you could employ spouse and then can make contributions to their pension.

Or incorporate as a LTD company
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Thanks @Marc.
Is it only the sole-trader's spouse who can avail of that?
Or is that the only think that makes sense on the basis of assuming joint ownership of marital assets?
 
I am a member of an occupational pension scheme. My employer wants to make an additional pension contribution for me into a PRSA which will be opened in next few weeks, (provider yet to be selected). Is it possible for me to have the two schemes in place (occupational pension scheme and PRSA) and can I make a contribution to both?
 
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