John Lahart (Dublin South West, Fianna Fail)
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381. To ask the Minister for Finance if he will clarify the assertion by the Revenue Commissioners that the Finance Act 2022 inadvertently created a loophole allowing employers to make unlimited, tax-free contributions to employee PRSAs, contrary to the policy's original intent, resulting in significant tax avoidance by a small cohort of companies, when the majority of company directors utilised it to effectively back-fund their pensions before retirement; the reason the rule was not simply made subject to a minimum service requirement or aligned with the rules governing occupational pension schemes; how does the rule address pension regulations in line with current Government policy; and if he will make a statement on the matter. [10592/25]

John Lahart (Dublin South West, Fianna Fail)
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385. To ask the Minister for Finance to explain significant changes in budget 2025 to the tax relief annual contribution limits for PRSAs; if the identification by the Revenue Commissioners be outlined where 125 companies had each transferred at least €100,000 into individual PRSAs to exploit generous tax reliefs, with 17 of these cases involving contributions exceeding €500,000, and some surpassing €1.3 million within a single year; how many of the cases involved non-principal family members with less than one year’s service, and company directors with more than 5 years’ service; and if he will make a statement on the matter. [10744/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 381 and 385 together.

I am advised by Revenue 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, as set out in section 787E(1) Taxes Consolidation Act 1997 (TCA), the contributions were relieved from tax. The employee’s annual percentage limit is between 15% and 40% of “net relevant earnings”, varying depending on age, up to a maximum relieved salary of €115,000. However, where the combined employer and employee 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 Finance Act 2022 removed the difference in BIK treatment between PRSAs and occupational pension schemes. The amendment abolished the BIK charge on employer contributions to an employee’s PRSA. In addition, employer contributions to an employee’s PRSA were no longer counted towards an employee’s age and salary related percentage limits on tax deductible contributions. These changes were recommended by the Interdepartmental Pension Reform and Taxation Group (IDPRTG) with a view to improving, harmonising and simplifying the pension landscape in Ireland. It was expected that the amendment would likely result in a change in behaviour by encouraging increased PRSA contributions.

Revenue engages with my Department in supporting the development of tax policy and associated legislation and, where appropriate, will draw my Department’s attention to matters arising in the operation of the tax system. As with any change in tax policy, Revenue actively monitored developments since the introduction of the changes in Finance Act 2022. The examination of employer contributions to PRSAs in 2023 identified a number of cases that gave rise to concerns and advised officials in my Department of these concerns.

Section 12 Finance Act 2024 addressed these concerns by providing 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 taxable 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”.

The funding rules for occupational pension schemes were not applied to PRSAs because of the differences between the two products. Occupational pension schemes are governed by Chapter 1 of Part 30 TCA. The maximum permitted funding is related to salary and service of members of the scheme. Occupational schemes must adhere to contribution limits which prevent “excessive” funding - that is, having more funds than is required to fund pensions for scheme members, which would mean in turn that too much tax relief had been granted on pension contributions.

This method is not appropriate for PRSAs, because it is a personal pension product, which is not tied to an employment. For this reason, a limit linked to future salary in an employment would not be appropriate. However, the employer limit imposes a cap on the amount of PRSA contributions that qualify for tax relief for employees and employers, as the maximum funding rules do for occupational pension schemes.

It will remain the case that employer contributions are not aggregated with employee contributions for tax relief purposes, and furthermore, a BIK charge is still not applicable on employer contributions to an employee’s PRSA up to the employer limit.

The Deputy asked for information about Revenue’s analysis of employer PRSA contributions. As he indicated, Revenue identified 125 employments with employer PRSA contributions in 2023 exceeding €100,000, 17 of which exceeded €500,000. I am advised by Revenue that in 99 cases of these cases (79% of the 125 cases), the employee had a connection to the employer, such as business owner, or spouse, child, or parent of the employer. Fewer than ten cases had contributions over €1.3 million; Revenue cannot release the exact number because that would potentially breach its obligation under section 851A TCA to ensure that taxpayer information is kept confidential. However, in those cases, I am advised by Revenue that the level of salary and service suggests that these contributions would not have exceeded Revenue maximum funding limits had they been made to occupational pension schemes, although the tax deduction would likely have been taken over more than one year.

On examination of the cases where the employer PRSA contribution exceeded €100,000 and the relevant employment commenced in 2023, I am advised by Revenue that, from the information available, fewer than ten cases involve the employment of family members of the employer business/company owner. As noted above, where there are fewer than ten cases Revenue cannot release the exact number because of its taxpayer confidentiality obligations under section 851A TCA.

I am also advised by Revenue that employers are not required to inform Revenue about the number of years’ service by a company director. Revenue therefore does not have information about company directors with more than five years’ service.