Section 22 of Finance Act 2022 removed the difference in treatment between PRSAs and occupational pension schemes in relation to the funding rules, by abolishing the Benefit-in-Kind (BIK) charge on employer contributions to an employee’s PRSA. In addition, employer contributions to an employee’s PRSA are no longer counted towards an employee’s age related and salary percentage limits on tax deductible contributions. These changes were recommended by the Interdepartmental Pension Reform and Taxation Group (IDPRTG) with a view to improving and simplifying the pension landscape in Ireland.
I can confirm that my Department did receive a paper from the organisation referenced by the Deputy in summer 2022 which related to the relevant recommendation of the Interdepartmental Group on Pensions and Tax Reform: “The differential treatment of PRSAs for funding purposes should be abolished and employer contributions to PRSAs should not be subject to BIK” .
When considering the appropriate way to implement the IDPRTG recommendation, removing the BIK limits for PRSAs was examined in detail, and the paper referred by the Deputy fed into these considerations.
As PRSAs do not require employer contributions and are not subject to the two-thirds final salary funding limit that is imposed on OPSs, it was clear that removal of BIK for employer contributions would result in PRSAs having less restrictions on employer contributions, albeit still subject to the overall tax relieved limit of €2 million (the Standard Fund Threshold).
Some alternative options were explored: an additional separate BIK limit for employer contributions to PRSAs; and a new PRSA product mimicking the salary-based limits on occupational pension schemes, to be used where an employer wished to make contributions to an employee’s PRSA. However, both these options were ultimately rejected.
While an additional BIK free limit for employee and employer contributions could result in an effective equalisation for most individuals, given the low levels of contributions, the rules for tax treatment of contributions would not be equalised and it was considered unlikely to be seen by stakeholders as meeting the recommendation of abolishing differential treatment of PRSAs. It would introduce new rules into an already complex legal and regulatory framework.
A PRSA product that tried to mimic the additional salary-based controls for OPS, in line with the submission referenced by the Deputy, would be the closest to complete equalisation of the tax treatment of contributions and was also considered. However, it was seen as over-complex, difficult to implement in practice and not aligned with the overall policy goal of simplification of the pension landscape.
Therefore, the decision was made to proceed with a proposal to fully remove the BIK charge for employer contributions to a PRSA in order to continue to work towards the overall goal of simplifying and harmonising the pension landscape.
In relation to tax planning, I am informed by Revenue that there is a continuous focus on compliance across pensions, identifying and confronting non-compliant behaviour across schemes. This is in line with Revenue’s Corporate Priorities 2024 commitment to comprehensively use the full suite of interventions set out in their Compliance Intervention Framework to assist voluntary compliance and to provide an appropriate response to non-compliance.
