The Minister for Finance Paschal Donohoe recently published the Finance Bill 2022 following approval by the Irish Government. This Finance Bill implements the taxation changes which were announced on Budget Day, as well as other administrative and technical changes to the tax code. We summarise the most important pension changes.
Tax relief for Personal Retirement Savings Accounts (PRSAs)
- The current position relating to employer contributions to PRSAs is that this contribution is treated as a Benefit in Kind (BIK) for the purposes of employee income tax
- This position effectively restricts employer PRSA contributions to a level that is usually significantly less than could be contributed BIK free to an Executive Pension Plan (EPP), or its Master Trust equivalent, for the same employee
- The Finance Bill proposes to alter the current position by abolishing the BIK charge for employer related PRSA contributions. If passed into law, the employer contribution will no longer be treated for tax relief purposes as an employee contribution. This is a recommendation of the Inter-departmental Pensions Reform and Taxation Group (IDPRTG)
- This change, if implemented, would take effect from 1 January 2023. Any employer contribution to a PRSA paid before the end of 2022 will remain a BIK charge for the employee
Tax relief for Pan European Personal Pension Product (PEPP)
- The PEPP was established under an EU Regulation of the same name in 2019 and is in many ways similar to the PRSA
- The PEPP allows members to switch providers, both domestically and cross-border
- The aim of the PEPP is to introduce a cost efficient, secure and portable pension product into the European pensions and insurance markets
- It was introduced in Ireland effective as of 28 August 2022, and the Finance Bill makes provision for tax relief on contributions to a PEPP similar to those that are being introduced for a PRSA
If the provisions set out in the Finance Bill do indeed remain and are passed into law, this would bring the tax relief available for employer contributions to a PRSA into line with those available for occupational pension schemes. More generally, the effect of the Finance Bill would also be to open up a number of different pension planning opportunities for employees.
These changes will be seen as welcome developments by many PRSA providers. A BIK free employer contribution will make the PRSA a more attractive product for those seeking alternatives to EPPs or master trusts.
Ensuring compliance with the relevant legislation and codes is an essential part of effectively and efficiently managing your scheme. For more information and expert advice, please contact a member of our Pensions team.