Retirement Funding Update 2023
Finance Act 2022 was passed on 15 December 2022 and the new BIK free employer PRSA contributions are now in force since 1 January 2023. A Brief Summary of the changes as follows:
Prior to 01st January 2023, an employer contribution paid to an employee or Director’s PRSA was a deemed to be a Benefit in Kind (BIK) for income tax purposes for that employee, but in practice,
- the BIK was not put through the PAYE system and did not attract a USC or PRSI charge.
- the employer contribution was treated for the employee, as if it were a personal PRSA contribution and so employee’s tax relief was limited by the age-related percentage limits and the €115,000 earnings limit in respect of all personal pension contributions
Post 01st January 2023, an Employer contribution to a PRSA is no longer deemed to be a Benefit in Kind (BIK) for an employee or Director which frees up the employee/Director’s tax relief limits for personal and AVC contributions which allows the employee to contribute more and claim tax relief via their PRSA. The updated legislation does not restrict the amount of BIK Free employer PRSA contributions in any way. Therefore, an employer can pay as much as they like into a PRSA for an employee without restriction to either salary or service of the employee.
Importantly, not only can an employer now make an unlimited contribution to a PRSA for an employee or Director, they can also claim full tax relief in the accounting period in which its paid. Employees still need to consider their overall Standard Fund Threshold of €2 million above which benefits are heavily taxed.
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.
Retirement planning can be a complex topic but if you require some help in this area, please contact the team at email@example.com & we will be happy to help you.