PRSAs in 2024

PRSAs are an attractive retirement and tax planning solution for some Irish businesses. Will this change in 2024?

Personal Retirement Savings Accounts (PRSAs) are currently an attractive retirement and tax planning solution for some businesses, as the limit on annual employer contributions was removed at the start of 2023.

Unlimited BIK free contributions

Since the start of 2023, there has been a more favourable funding situation for PRSAs, as opposed to the traditional executive pension scheme. Employers have been able to pay unlimited BIK free contributions to a PRSA for an employee or company director, unlimited by salary, service, existing scheme funding or pension benefits already accrued.

Effectively this allows Company Directors to extract a larger amount of profits and obtain tax relief in the current tax year.

Removal of upper age limit on PRSAs

As the dust from Budget 2024 settled, the Finance Bill released in October 2023 removed the upper age limit of 75 years on accessing funds in a PRSA.

Previously, if the PRSA holder did not commence taking benefits before reaching age 75, the fund was deemed to “vest” – funds could not then be drawn down although it could pass to beneficiaries after the holder’s death. The Bill provides for the removal of the upper age limit, allowing for drawdowns by a PRSA holder after they reach the age of 75 years.

Why choose a PRSA?

• Employer contributions to a PRSA are no longer restricted. The only annual or lifetime funding limit is now the €2M cap (€2.15M in practice).
• There is no BIK for the director/employee on the employer PRSA contributions. BIK charge on employer contributions removed. No longer included in age related limits.
• Tax relief on employer contributions can be claimed in the year it’s paid. There is no requirement to spread forward relief.
• Employers don’t have to be a limited company; sole traders and partnerships are also eligible. It is now an option for all PAYE employees.
• Death benefits have also been simplified, with the full value paid to the Estate.
• IORP II requirements do not apply.

With the release of the Finance Bill now behind us, we don’t see any other proposed changes in pension law for 2024. The general trend is towards pension product simplification.