Employer PRSA Contributions

Up until 2023, the maximum contributions employers could make to pension plans were determined by the employee’s salary and years of service. However, the Finance Act 2022 introduced substantial changes concerning Personal Retirement Savings Accounts (PRSAs).

Unlike traditional company pension plans, PRSAs do not restrict employer contributions based on age, service, salary, or other pension benefits. The sole constraint on employer contributions to a PRSA is the lifetime Standard Fund Threshold (SFT) of €2 million. This new framework makes PRSAs particularly appealing for business owners compared to occupational pension schemes or master trusts, where contributions remain bound by salary, service, and age criteria.

Moreover, tax relief on all employer PRSA contributions can be claimed in the accounting period they are made. This contrasts with special contributions to occupational pensions, where tax relief must be allocated over a five-year period.

An Employer contribution to a PRSA is no longer a Benefit in Kind (BIK) for an employee. That gets rid of an employer contribution to a PRSA being restricted by age related limits.

It also means that employee contributions to PRSAs aren’t restricted by any employer contribution paid which was the case up to now. So this also allows employees to contribute more and claim tax relief via a PRSA.

However, the legislation does not restrict the level of BIK free employer PRSA contributions in any way and these are not based on salary/service etc as we are used to in occupational pension schemes which are subject to Revenue maximum funding rules.

Consequently, an employer can pay as much as they like into a PRSA without reference to either salary or service of the employee.

Tax relief on all employer PRSA contributions can be claimed in the accounting period in which it is paid, unlike a special contribution to an occupational pension where the tax relief is spread forward over 5 years.

So now an employer can make any contribution to a PRSA they wish without limit.

Employees still need to consider the overall Standard Fund Threshold (SFT) of €2 million, above which benefits are taxed at a punitive tax rate of 71%.

However, note that a PRSA can be ‘split’,  allowing a ‘good’ fund of €2m and a ‘bad’ fund above €2m. The bad fund can be deferred to age 75 and death before retirement is not a benefit crystallisation event for the purposes of applying the excess tax above the SFT. Therefore, just leave the excess to the family as a tax efficient inheritance

In summary, not only can an employer now make an unlimited contribution to a PRSA, they can also claim tax relief in the accounting period in which its paid.

These rules are now hardwired in to current legislation. They apply to employees and 20% shareholding Directors. They also apply to 20% shareholding Directors of Investment Companies.

Self Employed Sole Traders or Partnerships can pay a BIK free employer PRSA contribution for an employee and this can include adult children (over 18) who can be put onto payroll.

The contribution to a Revenue approved pension, such as a PRSA, is not subject to CAT, even where there is a family relationship between the parties. Therefore contributions can be made to a child’s pension without impacting the CAT A exempt amounts.

Revenue’s position on salary sacrifice still needs to be considered and should not be overlooked when making an employer contribution. Extra employer payments in addition to existing remuneration are allowable but an employee reducing their salary to make the payment will be caught by the salary sacrifice provisions.

An employer can contribute to an occupational scheme and a PRSA at the same time for the same employee.

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