Noel Grealish (Galway West, Independent)
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259. To ask the Minister for Finance the rationale to cap the maximum employer contribution of a PRSA to 100% of an individual’s salary in the year of payment from 1 January 2025; if there was significant evidence of abuse of the previous structure where annual contributions from employers were only limited by the SF; and if he will make a statement on the matter. [44197/24]

Jack Chambers (Dublin West, Fianna Fail)
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The Deputy may be aware that prior to 1 January 2023, where the combined contributions by an employer and an employee to the employee’s Personal Retirement Savings Account (PRSA) did not exceed the employee’s annual percentage limit (between 15% and 40% of “net relevant earnings”, varying depending on age, up to a maximum relieved salary of €115,000) the contributions were relieved from tax. However, where the combined contributions exceeded the applicable threshold, the amount above the threshold was treated as a taxable benefit in kind (BIK) in the hands of the employee.

Section 22 of Finance Act 2022 removed the difference in treatment between PRSAs and occupational pension schemes. The amendment abolished the Benefit in Kind (BIK) charge on employer contributions to an employee’s PRSA. In addition, employer contributions to an employee’s PRSA no longer counted towards an employee’s age and salary related percentage limits on tax deductible contributions.

As with any change in tax policy, Revenue has actively monitored developments since the introduction of these changes in Finance Act 2022. The examination of employer contributions to PRSAs in 2023 identified a number of cases that give rise to concerns. Revenue data shows that in these cases, the employer contributions to PRSAs were significantly higher that the salary associated with the employment and, in most of these cases, the employee for whom the contribution was made had a connection to the employer (for example, the company owner or a family member of the owner). Following consideration of the data, it would appear these cases are giving rise to behaviour that is not in keeping with the policy intention of the changes made in Finance Act 2022.

Section 12 of Finance Bill 2024 aims to address these concerns. If enacted by the Oireachtas, the measure will provide for an “employer limit” on employer PRSA contributions of 100% of the relevant employee’s salary. Any contributions above the “employer limit” will be considered a BIK for the employee and therefore subject to tax. Where an employee’s salary in a particular year is lower than in the previous year because of unpaid leave such as maternity leave, parental leave or extended sick leave, the limit will be 100% of the employee’s emoluments for the previous year of assessment. In addition, an employer will only be able to take a deduction for Corporation Tax purposes for PRSA contributions for an employee up to the “employer limit”.

While addressing the concerns raised by Revenue I am also cognisant of ensuring a balance and not returning to the overly restrictive limits on employer contributions to PRSAs. The introduction of a 100% of salary limit achieves this balance.

Employers currently get full tax deductibility against their profits for pension contributions on behalf of their employees and there is currently no upper limit on tax relief for employer contributions. Following enactment of Finance Bill 2024, tax deductibility for employer contributions to PRSAs will only be allowed up to the “employer limit”.

An individual’s overall pension savings (including any employer contributions and including the individual’s aggregate pension savings in all products) is subject to an overall tax relieved limit, known as the Standard Fund Threshold (SFT), which is currently €2 million.