Understanding Recent Changes to PRSAs: Significant Benefits for Business Owners As We Approach Company Year End’s

Understanding Recent Changes to PRSAs: Significant Benefits for Business Owners As We Approach Company Year End’s

With effect from 1st January 2023, significant changes have taken place in the realm of pension planning and specifically with Personal Retirement Savings Accounts (PRSAs). These updates have had a significantly positive impact for business owners ushering in new possibilities for increased pension contributions and most importantly, full corporation tax relief.   

From 1st January 2023 Onwards:

  • A company can now contribute to an employee or Directors PRSA without being constrained by age-related tax relief contribution limits which was the position prior to 01st January 2023.
  • A company can now make unlimited employer contributions to an employee PRSAs without age-related limits.
  • Employer contributions are no longer treated as Benefit-in-Kind which was a significant restriction of PRSA’s previously.
  • A company can claim the full corporation tax deduction in the accounting year the payment was made.

The recent changes have sparked discussions about the implications for employer contributions to PRSAs, particularly in terms of control. As of now, the legislation does not impose any upper limit on employer PRSA contributions which is the current position with ‘occupational pension’ schemes.

Key Points for Directors & Business Owners:

  • Contributions are only for registered employees where there is an Employer & Employee relationship being a salary paid to the director/employee and taxed under PAYE tax system.
  • Factors like salary, service duration, and accrued pension benefits don’t influence employer contribution capacity.
  • The Lifetime Pension Fund Limit (€2 million) and the employer’s financial capability are the primary constraints.
  • PRSAs serve as a corporation tax-efficient product for retirement funding.
  • On the unfortunate death of the business owner prior to retirement, the full value of a PRSA are paid to the estate as a tax free payment.
  • Enables directors / business owners to maximize tax relief during financially viable years therefore minimising their corporation tax liabilities.
  • Employers can contribute to both occupational pensions and PRSAs.
  • PRSAs emerge as an appealing alternative to executive pension plans and occupational pension schemes.

In conclusion, the removal of the employer contribution limits to PRSAs opens up exciting opportunities for business owners and company directors. By capitalizing on the ability to make flexible and tax efficient pension contributions, you can pave the way for a more secure and prosperous retirement. If Eolas Money can help in any way prior to your company year end, please do not hesitate to contact us to chat through the details with you.