The Finance Act introduces significant changes to pensions and Personal Retirement Savings Accounts (PRSAs) in Ireland, effective January 1, 2025. These updates will affect both employers and employees, particularly company directors. Below is a summary of the key changes that will impact PRSAs, employer contributions, and the introduction of Auto-Enrolment.
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Employer Contributions Limited to 100% of Salary
A major update is that employer contributions to a PRSA are now capped at 100% of an employee’s or director’s salary. For instance, if your annual salary is €80,000, your employer’s contributions cannot exceed this amount. This establishes clear limits on contributions, linking them directly to salary levels.
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Excess Contributions Treated as Benefit in Kind (BIK)
If an employer exceeds the contribution limit, the excess will be classified as a Benefit in Kind (BIK), meaning it will be taxed as income for the employee or director. For example, if an employer contributes €90,000 on behalf of someone earning €80,000, the additional €10,000 will be subject to income tax.
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Tax Deductions for Employers
Employers can still claim tax deductions on PRSA contributions within the 100% salary cap. However, if contributions exceed this limit, the extra amount cannot be deducted, resulting in tax implications for employees due to the over-contribution.
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Updates to the Standard Fund Threshold (SFT)
The Standard Fund Threshold (SFT)—the maximum amount you can save in your pension without incurring additional tax penalties—will change. From 2026 to 2029, the SFT will increase by €200,000 increments, reaching €2.8 million by 2029. After this point, the limit will adjust annually based on an applicable growth rate, making it essential for retirement planning.
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Upcoming Auto-Enrolment Requirements
Auto-Enrolment is set to commence, requiring employers to automatically enrol eligible employees in a pension scheme. Both employers and employees will contribute, aiming to enhance pension coverage in Ireland, especially for those currently not enrolled in any pension scheme. Details of the automatic enrolment initiative, known as the My Future Fund, are expected to be finalised by September 30, 2025.
Next Steps
- Employers: Ensure pension contributions comply with the new 100% salary cap to avoid potential tax liabilities.
- Employees and Directors: Understand the implications of these changes on retirement savings and strategize to prevent exceeding contribution limits.
- High Earners: If your pension fund approaches the SFT, consider consulting a financial advisor to mitigate possible tax penalties.
- Everyone: Keep an eye out for more information about Auto-Enrolment, as it will significantly influence many in Ireland.
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Book a call with our advisors today and let us assist you in navigating these changes to secure your financial future.
Adrian Godwin is a Senior Financial Consultant and the co-founder and managing director of Oaktree Financial Services. With a background in accounting and tax advising, Adrian specialises in estate planning and wealth management.Adrian offers clients reassurance through best practice solutions. His unique skill set and qualifications enable clients to develop comprehensive life plans that align with their goals.
