PRSA - Salary deduction or employer contribution?

Brendan Burgess

Brendan Burgess

Founder
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Is there any difference between classifying a PRSA contribution as an employer contribution or an employee contribution? For example, if an employee has a bonus due of €5,000 and wants to put it into her PRSA. 1) The employer can put it straight into the PRSA as an employer contribution - a form of salary sacrifice2) Or the employer can include the bonus in gross salary and then deduct it from the gross on the payslip. 1) Seems much more convenient and requires less bookkeepingPresumably the employer's and employee's PRSI is the same for both? The small advantage of 2) would be that the employee's salary would be higher which could be useful for getting a mortgage? Is there any side effect in the long term? For example, does the employee get a higher tax-free sum on retirement or redundancy? Brendan
 
No difference - the higher salary in (2) would also allow a higher pension contribution though (the max being a % of salary)...
 
Hi CapitalCCC

Do the limits apply to employers' contributions as well as employees' contributions? If they don't apply to employers's contributions, then salary sacrifice would be the way to go.

Brendan
 
Hi Brendan,

No Capital CCC's point is that using your method (2) the employee's salary is increased and so too the relevant age-related limit. If the PRSA contribution is deemed an employer contribution, the employee's salary has not increased.

Example - 35 year old employee - salary €50,000. Bonus payable €12,000.

(1) Employer pays €12,000 PRSA contribution. Salary remains at €50,000. Maximum contribution €50,000 x 20% = €10,000. Contribution exceeds limit that year.

(2) Employer increases salary to €62,000 and then deducts €12,000 as an employee contribution. Maximum contribution €62,000 x 20% = €12,400.

Liam D. Ferguson
www.ferga.com
 
Hi Brendan

Yes, LDF covered my point exactly.

Club - I agree, should by no PRSI in both cases.
 
Hi Liam and CI understand that point, but my point is different. Can you confirm that the employer's contribution is subject to the 20% limit? Am I right in saying that there is no such limit in an occupational pension scheme? Brendan
 
The employer's limit in an occupational scheme could (and usually would) be much higher than the limit that applies to employees/PRSAs/Personal Pensions.

However, it would depend on the age of the person, the fund size and the salary - 100% + would not be unusual for the employer limit.
 
Hi Capital CCC

I still do not have a clear answer to my question.

Do the age limits apply to the employers' contributions to the PRSA?

Brendan
 
aMy understanding is that with a PRSA the employee and employer contributions are added together and must be within the relevant age related salary percentage to benefit from full tax/PRSI relief. With an occupational scheme I believe that the employee can contribute to their pension tax relief limit with their personal and AVC contributions and further employer contributions and additional employer contribitions (up to certain limits?) don't trigger any BIK liabilities on the employee and are exempt from employer PRSI.

I could be wrong but that's how it worked for me in various (occupational and PRSA) schemes to date.
 
Brendan - sorry, thought you were considering occupational scheme...PRSA limits are the same it does not matter whether contributions are made by individual or employer the contributions are added together and must be within limits...
 
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