Changes introduced in the Finance Act 2022 mean that employer contributions to PRSAs (Personal Retirement Savings Accounts) are no longer subject to tax in the form of a benefit in kind (BIK) nor are they tied to the salary, age and years of service of the director / employee.

The effective removal of this cap on contributions means that companies can invest substantial sums into PRSA’s on behalf of company directors, business owners or key employees. They can significantly increase their pension fund much earlier than might have been previously possible, whilst availing of corporation tax relief on the contributions made. This is a very tax efficient method of moving funds out the business, securing them into your own name, and allowing them time to grow tax free within your pension fund.

However, there is currently a spotlight on the impact of these changes. Revenue has written to the Dept of Finance raising concerns that they may have created a loophole by allowing company directors to sink up to €2m tax free into their pensions in a short timeframe, with the added advantage of reducing the company corporation tax bill. The commentary suggests that the department is actively monitoring this matter, and there is clearly some political pressure to review it.

Whilst there is a risk that this window of opportunity may soon be closing, for the time being employers can still make substantial PRSA contributions for company directors and key employees (subject only to the €2m lifetime limit).

If you have a profitable business with cash reserves now is an opportune time to either consider starting a pension or to review your existing pensions to see whether you and your business could benefit from these tax effective options, while they are still available.

Call us today on 0749321420 for a no-obligation discussion on your pension options.