PRSA Contributions Capped at 100% Salary

M

MTB_FS

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Not sure did I read the Finance Bill correctly, but PRSA employer contributions capped at 100% salary?

Should they not have moved it to the Max Funding approach?

So everyone back to Exc. pensions and ARFs now.
 
MTB_FS, looking at the explanatory notes you could well be right

Section 118 is amended to provide that any contributions above the “employer limit” defined in section 787A of the TCA 1997 will be considered a BIK for the employee and therefore subject to tax.

Sections 787A and 787E of the TCA 1997 are amended to insert a new definition of “employer limit” of 100% of an employee’s salary, which will apply to employer contributions to a PRSA.

Section 787J is amended to provide that an employer’s contributions to an employee’s PRSA will be an allowable deduction in calculating the employer’s taxable profits up to the new employer limit.
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So this is plugging the unlimited PRSA contributions "loophole" that was introduced a couple of years ago I presume?
 
I'm ready the Bill and can see that employer PRSA contributions are indeed being limited to 100% of salary.

I can't see where it says the effective date of this change. Is it immediate or 2025 tax year?
 
But that still means that I could earn €x and my employer could choose to contribute €x to my pension without any BIK issues arising?
Still seems very generous?
 
ClubMan said:
But that still means that I could earn €x and my employer could choose to contribute €x to my pension without any BIK issues arising?
Still seems very generous?
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Can you still make additional payments as an employee or does this require an AVC PRSA?
 
Savvy said:
Can you still make additional payments as an employee or does this require an AVC PRSA?
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You can still make employee payments to a PRSA up to the age-related limits for tax relief and a maximum salary of €115,000.
 
ClubMan said:
But that still means that I could earn €x and my employer could choose to contribute €x to my pension without any BIK issues arising?
Still seems very generous?
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It now makes the choice between on older-style Occupational Pension Scheme (OPS) and a PRSA more complicated. :rolleyes: Maximum employer contribution to an OPS is a calculation based on salary, years of service and all existing pension benefits. Sometimes the result will be greater than 100% of salary; sometimes it will be less. Going forward, if someone is looking to get their company to aggressively fund their pension their broker will need to run the figures on both choices to see which gives a better result.
 
ClubMan said:
But that still means that I could earn €x and my employer could choose to contribute €x to my pension without any BIK issues arising?
Still seems very generous?
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Yes I agree with you there. Example, employee 45 years of age earns €100,000 per year and can receive €100,000 employer contribution. Rinse repeat for 15 years plus growth which is over €1.5m. That is a good deal.
 
ClubMan said:
And there's me thinking that they were trying to work towards simplifying the pension landscape/choices... :(
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It's irritating. As a financial broker I have a conflict of interest in that continued complexity and rule changes benefit me personally as many people will continue to need people like me to explain the differences to them. But looking at the bigger picture I believe that consumers would benefit far more if all the rules were simplified across the board and products simplified with it. Want more people to contribute to private pensions? Don't make them so complicated that people understandably are reluctant to commit money to something they struggle to understand.
 
Seeking clarity on one point: the s787A and s787E cap referenced above is 100% of employee's salary. Can anyone confirm that this definition is 'base salary', so would exclude employment bonuses, BIK and also salary sacrifice deductions?
 
Dave Vanian said:
It's irritating. As a financial broker I have a conflict of interest in that continued complexity and rule changes benefit me personally as many people will continue to need people like me to explain the differences to them. But looking at the bigger picture I believe that consumers would benefit far more if all the rules were simplified across the board and products simplified with it. Want more people to contribute to private pensions? Don't make them so complicated that people understandably are reluctant to commit money to something they struggle to understand.
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Do you foresee * a lot*of business owners reverting back to Master trust pensions (instead of PRSAs employer contributions) in 2025? Any thoughts ?
 
deadlyduck said:
Seeking clarity on one point: the s787A and s787E cap referenced above is 100% of employee's salary. Can anyone confirm that this definition is 'base salary', so would exclude employment bonuses, BIK and also salary sacrifice deductions?
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It's total emoluments.

cally1990 said:
Do you foresee * a lot*of business owners reverting back to Master trust pensions (instead of PRSAs employer contributions) in 2025? Any thoughts ?
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It'll be a case by case situation. For most, it is the initial lump sum payment that tends to be the big one and payments thereafter are smaller.

There's also the case of the company owner who paid themselves a higher salary while raising their family and neglected their pension. Now the family is raised and mortgage paid off, they want to fund their pension and will do so by reducing their pay and increasing their pension.

But in general, 100% of total emoluments won't catch out most company directors (and it is company directors we are talking about).
 
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