Big Changes to PRSAs and Pensions from January 2025.
The Finance Bill, published in October 2024, brings some important changes to how pensions and Personal Retirement Savings Accounts (PRSAs) will work in Ireland.
These changes will have a big impact on retirement savings for company directors. Here is a summary of the key changes from Jan 2025.
Employer Contributions to PRSAs will be limited to 100% of Salary.
The big news is that employers can only contribute up to 100% of an employee’s or director’s salary to a PRSA. So, if someone earns €50,000 in 2025, their employer can contribute up to €50,000 to their PRSA for that year and no more.
Contributions Above 100% of Salary Count as Benefit in Kind (BIK)
If the employer goes over that limit, the extra amount will be treated as a Benefit in Kind (BIK). This means the extra contribution will be taxed as income for the employee or director. For example, if the employer contributes €60,000 to a PRSA for someone earning €50,000, the additional €10,000 will be taxed as part of the employee’s income.
Tax Deductions for Employers
Employers can still get a tax deduction on their PRSA contributions, but only up to the 100% salary cap. So, if they contribute more than the salary, the company won’t be able to claim a tax break on the extra amount, and the employee will face a tax bill for that over-contribution.
Changes to the Standard Fund Threshold (SFT)
The Bill also discusses changes to the Standard Fund Threshold (SFT), the limit on how much you can save in your pension without facing extra tax penalties. This mostly affects higher earners or people with large pension funds. The SFT is to be increased in line with the recommendations set out in the recent Department of Finance report.
- Increased to €2.2M in 2026.
- Increased to €2.4M in 2027.
- Increased to €2.6M in 2028.
- Increased to €2.8M in 2029.
From 2030 onwards the SFT will be increased in line with the Earnings, Hours and Employment Cost Survey. The legislative link between SFT and the maximum retirement lump sum will no longer apply, the standard chargeable amount will be set at €500,000 less the tax-free amount (currently €200,000)
Auto Enrolment Is Coming
Auto-enrolment is a new pension savings scheme for certain employees who are not paying into a pension. They will be automatically included in the scheme but can opt out after 6 months. The introduction of the Auto-Enrolment Retirement Savings Scheme, called My Future Fund, will start from 30 September 2025.
Under the scheme, the employee, employer, and Government all pay a certain amount into the employee’s pension fund. A new public body, the National Automatic Enrolment Retirement Savings Authority, will be set up to administer the Auto-enrolment scheme. The scheme will be supervised by the Pensions Authority.
Who will be automatically enrolled?
You will be automatically enrolled in the new pension scheme if you are an employee and:
- You are aged between 23 and 60.
- You are not currently part of a pension plan.
- You earn €20,000 or more per year.
If you previously contributed to a pension but now do not, and you meet the other conditions, you will be automatically enrolled.
If you earn less than €20,000 per year, or you are not aged between 23 and 60, you can choose to join the pension scheme if you are not already part of a pension plan.
What Should You Do Next?
- Employers: Make sure that your pension contributions are in line with the new 100% salary cap. Contributing too much could result in unexpected taxes for both your company and your employees.
- Employees and Directors: Be aware of how these new rules may impact your retirement savings and plan ahead to avoid getting hit with taxes if contributions go over the new limits.
- High Earners: If your pension fund is close to the SFT, now’s a good time to seek financial advice to avoid extra tax penalties.
It will be crucial to get advice on all of this soon, because from January 2025, rules and changes in the different pension schemes will become more complex.
You may need help understanding what is the best option for your company and personal situation.
Feel free to call Joanne on 01 5267770 or 053 9110380 or email jfenelon@arfireland.ie if you have any questions.
