How to Maximise PRSA Contributions Before the 2025 Pension Tax Relief Changes

In the U.S., the term “October surprise” has been used since the 1980s to describe last-minute, unexpected events that have the potential to swing a presidential election. As we near another November election, surprises have already played a significant role, and the outcome remains a 50/50 toss-up. In Ireland, we’ve experienced an October surprise of our own, not in politics, but in pensions tax relief.

The October Finance Bill introduced a pivotal change, following the recent increase in the pension fund threshold to €2.8 million. Starting in January 2025, corporation tax relief on employer contributions to a PRSA will be capped at 100% of that year’s emoluments (salary, bonuses, and benefits-in-kind). While this has sparked disappointment in some quarters of the pensions industry, I believe this change brings much-needed clarity and represents a reasonable compromise.

As we approach the end of 2024, company directors and business owners in Ireland are facing a critical moment for tax-efficient pension planning. These changes will dramatically alter how employer contributions to Personal Retirement Savings Accounts (PRSAs) are treated from a tax perspective. For those with cash sitting in their companies, this presents a rare chance to transfer significant company profits into personal pension wealth—but time is running out.

Why PRSA Contributions Are Changing and What It Means for You

Currently, there are no limits on the amount an employer can contribute to a PRSA, making it an incredibly tax-efficient way to build retirement savings. Employer contributions are fully allowable for corporation tax relief and are not subject to income tax, USC, or PRSI. However, this window is closing. From January 2025, employer contributions will be capped at 100% of the individual’s emoluments (salary, bonuses, and BIK). This change will restrict the amount that can be contributed in a tax-efficient manner, limiting the flexibility that company directors currently enjoy.

By acting now, directors can make the most of the current PRSA rules and secure tax-efficient pension wealth before these restrictions come into play.

Example 1: Maximise Contributions for Yourself and Your Spouse Before 1st January 2025

Let’s take the example of a company director earning €150,000 annually. Under the current rules, your company can make unlimited contributions to your PRSA. For example, the company could contribute €500,000, which is fully allowable for corporation tax relief and exempt from income tax, USC, and PRSI. This presents a highly tax-efficient method for transferring company profits into personal wealth.

Now, consider the director’s spouse. If the spouse is also a director/employee in the company and earns €100,000 annually, the company could also contribute €500,000 (or any amount, as there is no cap) into their PRSA.

By making these contributions before 1st January 2025, the couple could have a total of €1,000,000 in their PRSAs—far exceeding their combined salaries—while maximising the tax-efficient benefits available under the current rules.

Example 2: The Impact of Waiting Until After 1st January 2025

If no action is taken before 2024 ends, the changes will significantly limit the potential for tax-efficient contributions. After 1st January 2025, employer contributions will be capped at 100% of emoluments. This means that a company director earning €150,000 will only be able to receive an employer PRSA contribution of €150,000. For the spouse earning €100,000, the company’s contribution will also be capped at €100,000.

The total PRSA contribution potential post-2025 drops significantly. In total, the couple could contribute only €250,000 after the changes, compared to €1,000,000 before the deadline—a difference of €750,000. This highlights the opportunity cost of waiting, as the ability to transfer larger amounts of retained company profits into personal pension wealth will be greatly reduced.

The Cost of Inaction

The difference between acting now and waiting until after 1st January 2025 is clear. By not taking advantage of the current PRSA rules, company directors and their spouses risk missing out on a substantial opportunity to build pension wealth in the most tax-efficient manner available. For high-earning directors, failing to act before the end of 2024 could mean leaving significant money on the table.

This is especially crucial for those with cash reserves in their companies. By acting now, you can shield larger sums from income tax, USC, and PRSI, while building your pension fund under the current, more flexible rules.

Secure Your Financial Future: Supercharge Your Pension Before It’s Too Late

With the 1st January 2025 deadline fast approaching, company directors and their spouses need to act quickly to take full advantage of the current PRSA contribution rules. By making unlimited employer contributions now, you can efficiently transfer company profits into personal pension wealth in a highly tax-efficient manner. Once the new rules come into effect, this opportunity will close for good.

At Financial Planning Matters, we specialise in helping company directors and business owners navigate these changes and maximise their PRSA contributions. Don’t miss this chance—get in touch with us to discuss how you can supercharge your pension before it’s too late.

The clock is ticking—waiting until after 1st January 2025 could mean missing out on a once-in-a-lifetime opportunity to build personal wealth in a tax-efficient way. Take full advantage while you still can!

"Time is Running Out: How Company Directors Can Maximise Tax-Efficient PRSA Contributions Before the January 2025 Deadline"