The pension landscape has undergone significant transformation over the past year. Before January 2023, any employer contributions to an employee’s Personal Retirement Savings Account (PRSA) were treated as a Benefit in Kind (BIK), unless the employee hadn’t exhausted their personal contribution limits. In that case, non-BIK employer contributions were allowed.
However, as of January 1, 2023, a remarkable change has occurred, there are no longer limits on employer contributions to an employee’s PRSA. This is groundbreaking news and represents one of the most substantial shifts in the pension landscape in two decades. It’s worth emphasizing that the standard fund threshold of €2.15 million remains applicable.
Earlier in the year, there were concerns about the continuity of this PRSA opportunity. However, Chapter 24.3 of the Revenue Manual has been updated to confirm that PRSA contributions are allowed without any BIK implications. This empowers employees and directors to maximize their personal contributions while also receiving employer contributions without facing penalties in the form of BIK.
Discussions about implementing auto-enrolment are ongoing, with the launch scheduled for Q3 2024. Live implementation may not occur until 2025. Employers are strongly advised to consult a financial advisor promptly to clarify their options and establish funding objectives for their employees’ pensions.
The proposed auto-enrolment plan would encompass anyone earning over €20,000 annually and aged between 23 and 60, involving them in a private pension scheme. Initially, as many as 800,000 workers are expected to be affected once the scheme becomes operational.
However, there are concerns that this may not be the ideal solution for everyone involved, and some employers might find an employer-sponsored PRSA or group Defined Contribution (DC) scheme to be a better fit.
Here are some noteworthy points to consider:
- There is no tax relief at either 20% or 40% on employee contributions, as there would be with a personal pension.
- Once enrolled, individuals cannot opt out, with a maximum suspension period of two years.
- Employees in their probation period with a new employer who have not yet joined the company pension scheme will be automatically enrolled.
- Investment choices are not available, and the government determines how the funds are invested.
- Access to savings is only possible at the state pension age.
- Transfers in or out of the government pension scheme are not permitted.
- Additional contributions cannot be made.
It’s important to note that these points may undergo changes, this inflexible structure may not be the most suitable option for all. Therefore, it is crucial for all employers to consult a financial advisor in the coming months to determine the best course of action for their company.
We hope that this information has been useful for you and as always, please don’t hesitate to contact us here at EcovisDCA where we remain open and ready to help. Please do not hesitate to contact us.