Prior to 1 January 2023, employer contributions into a Personal Retirement Savings Account (PRSA) were taxable as a Benefit in Kind (BIK) and could create an income tax liability for the employee if employer and employee contributions to the PRSA in the relevant year exceeded that employee’s own personal age related limit. For that reason, many company directors chose an Executive Pension to fund for their retirement. These arrangements offered much greater scope to make an employer contribution into the pension scheme on their behalf.
Since January 2023, employer contributions to a PRSA no longer cause a BIK and potential income tax liability for employees. Furthermore, employer contributions to a PRSA are not subject to the same funding rules that exist within Executive Pensions. They are not subject to any limitation (other than the €2,000,000 Standard Fund Threshold). It is for this reason that PRSA’s now offer a compelling alternative to Executive Pensions for Company Directors planning for their retirement. We have seen many clients utilise these new funding rules in 2023 under PRSA’s and expect this trend to continue in 2024.