1.What are the latest funding rules for an Employer paying into a Personal Retirement Savings
Account (PRSA)?
There is no limit on the amount an employer can contribute to an employee’s PRSA. However, the overall standard fund threshold for an individual of €2m applies.”
2. What are the limits for employee contributions to a PRSA?
Employer contributions paid after 1 January 2023 no longer count towards the employee’s scope to make PRSA contributions. The maximum an employee can pay into a PRSA each year and receive tax relief is a percentage of their salary which is capped at €115,000, and based on their age at end December in the relevant year.
Age % of earnings
Under 30 15%
30 – 39 20%
40 – 49 25%
50 – 54 30%
55 – 59 35%
60+ 40%
Source: Revenue.ie – Age-related earnings percentage limits.
3. Can an employer contribute to an occupational pension scheme and a PRSA for an employee at the same time?
Yes this is possible. Employer contributions into the PRSA are not subject to any funding limits.Employer contributions to the occupational pension scheme however are still subject to current funding rules. Contributions must either be allowable as Ordinary Annual or as Special Contributions. Note that funding of the PRSA will lead to the creation of a new pension benefit which must be taken into account in funding calculations and therefore will impact the ability to fund in an occupational pension scheme.
4. Is it possible for an employee to contribute to both an occupational pension and a PRSA at the same time?
Employees who are paying into an occupational pension scheme can only further pension that income by using a PRSA Additional Voluntary Contribution (AVC).
While contributions to a PRSA (Non AVC) are not forbidden, it would not make sense to do this as the individual would not qualify for tax relief on contributions to the PRSA (Non AVC).
5. Is salary sacrifice allowed when an employer funds a PRSA for an employee?
No this is not possible. Where an employee accepts a reduction in remuneration to which they are contractually entitled to from their employer to allow for an employer contribution into either an occupational pension scheme or a PRSA, then the Revenue would deem this to be salary sacrifice.
Revenue’s guidance on this is that is as follows:
“Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer. Such arrangements are subject to the provisions of section 118B TCA 1997.” If salary sacrifice did occur the employer contribution would be considered income received by the employee and taxed accordingly.
6. Must a salary be paid to an employee to allow an employer to claim a PRSA contribution as an
expense and receive corporation tax relief?
Yes. The Finance Act changes in January 2023 now mean that an employer can contribute to an employee’s PRSA without benefit-in-kind (BIK) implications for the employee. Section 787J of the Taxes Consolidation Act 1997 which is the section that deals with an employer’s ability to claim tax relief is clear that relief is only available in respect of contributions for an employee and our understanding is that salary (Schedule E remuneration) is regarded by Revenue as a fundamental factor in determining whether someone is an employee in this context.
7. Does proof of the Income from the employment need to be submitted when an employer contributes to a PRSA?
Proof of the Employment Income in the form of a Payslip or Employment Detail Summary (EDS) is not a requirement for the PRSA product.
8. Can an employer contribute for a former employee and claim a PRSA contribution as an expense and receive corporation tax relief?
Relief is only available in respect of contributions for an employee and salary is regarded by Revenue as a fundamental factor in determining whether someone is an employee in this context. Therefore, where salary has stopped and the client is no longer employed by the employer, it would most likely cause the employer an issue in claiming back tax relief
9. Can an employer that employs people in Ireland but is resident overseas pay into a PRSA for
Irish resident employees?
Yes, provided the employee is paying tax under the PAYE System here and the non-resident employer has registered as an employer in this state.
10. Do pension lump sums from employer sponsored PRSAs have to be included in redundancy
Calculations (Increased Exemption & Standard Capital Superannuation Benefit (SCSB))?
Current Revenue guidance is that only pension lump sums from occupational pension schemes are included in redundancy calculations (Increased Exemption & SCSB). Lump Sums under a PRSA have historically been excluded from these calculations.
11. Do 20% directors have to sever all links with their company in order to access PRSA benefits early (prior to age 60)?
A 20% director with a PRSA can access benefits at age 60 without any requirement to leave service and can do so earlier between age 50 – 60 where the employment linked to the PRSA has ended and individual is no longer economically active. There is no requirement to dispose of shareholdings with the company when accessing PRSA Benefits. This restriction does continue to apply to occupational pension schemes.
12. What happens at retirement if a member has both an occupational pension scheme and PRSA linked to the same employment?
Benefits from the occupational pension scheme and PRSA (Non AVC) do not have to be matured at the same time. The PRSA can provide a 25% retirement lump sum regardless of the option chosen at retirement for lump sum under the occupational pension scheme. The occupational pension scheme could provide a 25% retirement lump sum or lump sum based on a salary and service calculation but important to understand that the lump sum under the PRSA (whether deferred or drawn down) will be factored into the maximum allowable salary and service lump sum calculation. The maximum possible salary and service lump sum of “1.5 X Final Remuneration” would be reduced by the value of the PRSA Lump Sum. PRSA AVC’s differ in that they must be matured in conjunction with the relevant occupational pension scheme and the retirement options chosen in that scheme will directly impact how the PRSA AVC’s can be paid.
13. What happens on death if a client is an active member of both an occupational pension scheme and PRSA linked to same employment?
PRSA fund would be paid in full to the estate. Occupational Pension Funds are subject to Revenue limits for Death in Service Lump Sums
• A refund of employee contributions and AVC’s can be paid.
• In addition, a lump sum of up to “4 X Final Remuneration” can also be paid but this
must be reduced to allow for lump sums paid from other arrangements from current and previous employments including the PRSA.
• Any residual fund remaining must be used to purchase an Approved Retirement Fund (ARF) or an Annuity for a beneficiary.
14. What happens on death if a client has a deferred benefit under an occupational pension scheme or PRB and is actively funding a PRSA linked to same employment?
The PRSA fund would be paid in full to the estate.
The Occupational Pension Scheme funds would be deemed preserved if the member has left service or the member has agreed with their employer and the scheme trustee to terminate pensionable service (cease active membership) of all occupational pension schemes in relation to the employment.
Our opinion would be that membership of an employer sponsored PRSA (now considered a sponsored superannuation arrangement by the Revenue) would not impact that preserved benefit status as the Pensions Authority guidance notes on preservation of benefits only reference active membership of occupational pension schemes as being a factor in determining when benefits are preserved or not. This is something the Revenue and Pensions Authority may wish to consider and could provide further guidance on in the future.
15. Can I transfer my executive pension (one member scheme) to a PRSA?
Yes, but subject to the following criteria being satisfied:
• On leaving service members would have an automatic entitlement to a transfer value and could choose to transfer to a PRSA but under current rules would need to obtain a Certificate of Benefit Comparison where the Transfer Value exceeds €10,000. Exit penalties will apply (where applicable)
• On scheme wind up for schemes set up on or after 22 April 2021 (forced to close due to IORP’s II) members would have the option to transfer to a PRSA with trustee consent but should be aware that exit penalties will apply (where applicable). In this scenario they will not be required to obtain a Certificate of Benefit Comparison as the scheme is being wound up.
• On scheme wind ups for pre 21 April 2021 schemes. Scheme rules will dictate what is required to trigger a wind up. The wind up of ZTSL One member schemes can be triggered by either member or employer instruction to the Trustee.
Members would have the option to transfer to a PRSA with trustee consent but should be aware that exit penalties will apply (where applicable). In this scenario they will not be required to obtain a Certificate of Benefit Comparison as the scheme is being wound up.
If you have any queries on PRSA’s get in touch with our Pensions Team on (01) 513 8710 or info@citywidefinancial.ie
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