For full functionality of this site it is necessary to enable JavaScript. Here are the instructions how to enable JavaScript in your web browser.
Skip to main content
PRSA image of a smiling person in a pink shirt
Back to Market and Insights

How can you benefit from recent changes to PRSA funding?

23rd March, 2023

There has been a significant amount of discussion recently about the opportunity to increase pension funding to Personal Retirement Savings Accounts (PRSAs). The benefit in kind on employer contributions for PRSAs was abolished in Finance Act 2022 which has opened up PRSAs to much larger tax-efficient company pension contributions than ever before.  

The good news is that the PRSA is now likely to be the pension structure of choice for business owners and directors and there is also the possibility for increased pension funding for directors of investment companies.  

That said; proceed with caution. We have seen commentary, which in our view, overstates the  opportunity and oversimplifies some of the complexity. Navigating the pitfalls and ensuring that the company receives a tax deduction for a pension contribution can be complex.  

To help make sense of it all, here are some of the key tips we’ve shared with clients; 

Don't believe the hype

Don’t believe all the hype. Some commentary has suggested that everyone can now receive an unlimited contribution to a PRSA, with the only practical constraint being the tax-efficient limit of €2 million. While this may be the case in some circumstances, there are other considerations  to ensure the payment will be deductible for corporation tax purposes for the company, and not subject to other adverse tax consequences.  

Don’t ignore Revenue guidance and tax law. 

Plenty of case law and guidance from Revenue already exists around excessive remuneration of family members and deductibility of management expenses for investment companies. The nature of the work carried out by the individual, how long they have carried out the work and the market rate for this work are factors all likely to be relevant. Any payment to the employee should be commensurate with their duties and the work they carry out. If the payment is excessive, there may be adverse tax consequences.  

Do ensure your advisers are on the same page

Work closely with your company’s tax adviser, who will be best placed to provide guidance on appropriate levels of pension contributions

Do make pension funding decisions in the context of a broader financial Plan.

A personalised financial plan will take into account you, your family’s and your business’s objective and will set out the most appropriate advice for your specific circumstances.  

There undoubtedly is an opportunity for some individuals to increase funding to PRSAs, however there are caveats that apply and caution should be exercised. The best outcome can be achieved by working closely with your tax adviser to review the tax deductibility of any remuneration amounts, including pension contributions, and ensure that all tax issues are considered. 

We believe that a financial plan brings clarity to the most appropriate structures and provides a set of actions to help you achieve what is most important to you, your family, and your business.  

If you’re an existing Davy client, please contact your Adviser to know more. If you’re new to Davy, why not request a call? 

Speak to an Adviser today

We're ready to help you along your journey

Request a call

Speak to an Adviser today

We're ready to help you along your journey

Request a call

Share this article

Other articles you may like