PRSAs in 2024 and 2025

PRSAs are an attractive retirement and tax planning solution for some Irish businesses. This will change in 2025.

Personal Retirement Savings Accounts (PRSAs) have been an attractive retirement and tax planning solution for some businesses – will the changes brought in by the Finance Bill 2025 alter that? 

Unlimited BIK free contributions end in 2024

Since the start of 2023, there was been a favourable funding situation for PRSAs, as opposed to the traditional executive pension scheme. Employers were 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 allowed Company Directors to extract a larger amount of profits and obtain tax relief in the current tax year. This changes in 2025.

PRSAs from 2025 on

The Finance Bill 2025, published in October 2024, has placed a limit on employer contributions from a BIK-exemption perspective to 100% of income drawn from the business in the same year. This measure will limit tax relieved PRSA contributions to 100% of an employee’s salary in any one year.

Once the changes in the Finance Bill take effect, large lump sum contributions to pensions will not be fully tax deductible for companies, and will be taxed as benefit-in kind for the individual.

As of November 2024, there is a short window left for owner-directors to consider large lump sum contributions to their pension pots so now is the time to act to maximise tax and retirement savings.

Removal of upper age limit on PRSAs

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?

• 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 2025. The general trend is towards pension product simplification.