PRSA Pension Plans – New Rules and Scope for Retirement Planning
Recent changes announced in the finance act came into force on January 1st 2023, greatly improving the PRSA as a retirement planning vehicle.
Under the previous rules, if you started a PRSA pension you were limited in what could be paid into it by either the company or the member by the level of salary and the member’s age.
This has now changed. From the 1st January 2023, employers are now able to pay unlimited BIK free contributions to a PRSA for an employee or director.
Allowable contributions are not limited by salary/service, existing scheme funding or retained benefits.
They will however be limited to the overall pension Standard Fund Threshold (SFT) of €2M and clearly, affordability.
The below table outlines some of the features of a PRSA pension and why it has become an attractive retirement funding structure.
Revenue practice restriction on level and incidence of employer funding
No, only subject to Standard Fund Threshold of €2M
Access to retirement benefits on ill health
Yes, on becoming permanently incapable through infirmity of mind or body of carrying on his or her own occupation or any occupation of a similar nature for which he or she is trained or fitted
Access to retirement benefits from 50 and before 60
Yes, on termination of the PRSA holder’s current employment – no requirement to sell any shareholding in the company.
Access to retirement benefits from 60
Yes, from 60; no requirement to terminate that employment.
Latest date retirement benefits can be accessed
75
Death in service
Full PRSA value payable as lump sum to estate. No requirement to transfer any part of the funds to an ARF.
Tax relief on employer contributions
All contributions allowed in accounting period in which they are paid.
PRSA Pension Plans – Funding for Other Employees
It would not be uncommon for many directors of small businesses to also have their spouses working in the business. These range from active directors to part-time workers.
Many companies fund for a ‘joint pension’ for the couple in the name of one director only, but there are many advantages of putting in place a separate pension structure for each spouse.
There are comparative advantages to funding for a spouse once one Director’s pension fund exceeds €800,000.
A larger net pension lump sum, and flexibility regarding the draw-down of different pension funds are two of these advantages.
We Are Here to Help
These changes offer clients new opportunities to make contributions to key employees’ pensions in a simple and tax efficient manner.
Should you wish to discuss the option of a PRSA, please contact Harvest Financial Services on 01 2375500 or email justask@harvestfinancial.ie
Warning: If you invest in this product, you may lose some or all of the money you invest.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in this product, you will not have any access to your money until age 60 and/or you retire.
The legislative information contained herein is based on Harvest Financial Services Limited’s understanding of current practice as at March 2023 and may be subject to change in the future.
The marketing material is not intended to provide advice and is provided for general information purposes only.
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