The Pension industry has undergone significant changes in recent times with the establishment of Master Trusts and the movement of many Pension Schemes to these new structures. However, some changes have gone unnoticed but could be valuable opportunities for Company Directors, Executives, and those wishing to catch up with their Pension funding.
Personal Retirement Savings Accounts (PRSAs)
The Finance Act in January of this year brought in changes that opened Personal Retirement Savings Accounts (PRSAs) as a route for Company Directors to extract monies from the Company structure with no limits other than the (Standard Fund Threshold, currently €2M) – and the Company’s capacity to fund a significant contribution and/or the potential to offset Corporation Tax. Additionally, this expense is allowed as an expense in the year in which the contributions are paid (with no upper limit) rather than being spread forward.
Investment Companies
The Act makes specific provision for a deduction of an employer PRSA contribution as an expense of management of an Investment Company. This means that an Investment Company can pay a BIK free contribution for a Company Director if they are in receipt of Schedule E remuneration.
Benefits of the Changes
These changes are attractive to Company Directors/Business Owners who receive salary under Schedule E with PAYE and wish to increase Pension funding or offset Company profits against Pension contributions. It is also attractive to employers as an option to reward employees through a Pension contribution as per their contract. Previously, employer contributions to a PRSA were a Benefit in Kind for Income Tax purposes for that employee. This has now been removed, giving employers more freedom to make larger contributions to a PRSA for their employees.
Who Can Benefit from These Changes?
- Company Directors with low salaries but wish to increase Pension funding
- Company Directors with Company profits and wish to offset against Pension contributions
- Company Directors of Investment Companies
- Company Directors who retired benefits from Company Plans/Executive Pensions and didn’t reach the €2m threshold or maximum Lump Sum – opportunity to continue to fund through a PRSA
- Spouse or family member working in Company with little or no Pension fund
- Employers wishing to fund employees (Executive level and lower) Pensions with little restriction
Conclusion
It is important to note that Revenue will still look harshly on ‘Salary Sacrifice’ (a contribution to a PRSA with a corresponding reduction in remuneration). This legislation may change in the future and should be closely monitored. It is important to seek advice before making any decisions.
FJ Hanly & Associates have been advising Corporate Executives and Business Owners on their pension options for over 30 years.
If you wish to avail of our free pension review services, please get in contact with us to discuss your full options at no obligation.
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