Employees across all roles can benefit. Business owners should know.

Is Wendy in administration losing out again?

As 2025 approaches, significant changes to Personal Retirement Savings Accounts (PRSAs) will reshape how business owners and employees can fund their pensions. Understanding these changes is crucial for optimizing tax benefits and retirement savings.

PRSA Changes in 2022

The Finance Act 2022 removed the benefit-in-kind (BIK) treatment of employer contributions to employee’s PRSA. BIK is ordinarily treated as taxable income. This policy change has been particularly beneficial for directors or family members working within a company. In fact, employees across all roles have been benefitting, by not paying BIK on employer contributions to their PRSA.

PRSAs offer flexibility of contribution types, contribution amounts, and there are advantages over traditional occupational pensions, such as simplified death benefits.

New PRSA Limits and Their Implications for 2024

The good news was that employer contributions to PRSAs are no longer limited by the employee’s age or salary, meaning large cash reserves in a business can continue to be directed into a PRSA, reducing tax liabilities. And indeed, perhaps some employees can have nice employment contract addendum’s that build in generous, tax-efficient personal retirement funds at the price of golden staff retention handcuffs. Win win.

For example, under the pre-2022 rules, contributions to occupational pensions were tied to salary levels, but now, up until December 2024 at least, an employer could contribute a substantial portion (€2 million) of a business’s profits to a PRSA without affecting the salary, say €20,000, paid to the employee. The Finance Bill 2025 restricts the employer contribution to a maximum pension contribution of 100% of the employee’s salary.

For business owners, this opens valuable opportunities for tax-efficient pension funding. Wendy working in administration was also able to benefit. For employees that are looking to maximise their wealth and minimise their taxes and are willing to stay loyal, it can be a useful employee benefits tool to negotiate at the annual contract review meeting.

How to Maximise PRSA Contributions Before 2025

As we get closer to 2025, it’s crucial to act now to take full advantage of these changes. Business owners, and indeed key employees across all roles, including Wendy in administration, should consult with financial and tax advisors to maximize these benefits before potential revisions come into effect.

Government have moved on the PRSA loophole, that for the last two years has allowed a short window for business-owners, and indeed (Wendy) the partners of business owners to boost their retirement fund, by up to two million euros, and legitimately reduce both their company’s tax and their personal tax bills. Let’s be honest here, the loophole was too generous. It’s simply not fair to leave the small and medium sized businesses of this country away with paying corporation taxes, that’s only an option for the footloose mega-tech and pharma companies.

New PRSA Limits for 2025

However, the government will tighten this PRSA loophole significantly under the Finance Bill 2025, published last week. The new rules limit employer contributions that qualify for BIK exemption. Starting in January 2025, employers can only contribute up to 100% of an employee’s salary to their PRSA Win win?

More PRSA Changes 2025

While business owners must act fast to leverage current loopholes, additional reforms, such as mandatory auto-enrolment, are also on the horizon. The government’s recent pension reform aims to encourage greater participation in private pensions and increase retirement security, so it’s important to stay informed and prepared.

For employers, mandatory PRSA contributions will also come into effect – auto enrolment. If you’re a low rate taxpayer. In addition, employers will have to start contributing a minimum percentage to their employees’ PRSAs. This aims to strengthen long-term retirement security for all workers. If otherwise you should get some Infinity Financial Planning retirement advise.

Finally, upcoming administrative reforms will streamline PRSA management and cut associated costs. Our team is ready to help you update your PRSA strategy, reduce fees, and get the most out of your retirement plan before these changes take effect. Contact us to review your plan before the 2025 changes take effect.

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