Eoin Hayes (Dublin Bay South, Social Democrats)
Link to this: Individually | In context | Oireachtas source

569. To ask the Minister for Finance the analysis his Department has undertaken since the enactment of the Finance Act, 2024 to close the tax loopholes relating to pension contributions, as disclosed in a confidential Revenue Commissioners report from Summer 2023 reported in a newspaper (details supplied);; and if he will make a statement on the matter. [19083/25]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

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. For occupational pension schemes, employer contributions are not a BIK.

Section 22 Finance Act 2022 sought to remove the difference in BIK treatment between PRSAs and occupational pension schemes. This section amended the Taxes Consolidation Act 1997, to abolish 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 on an ongoing basis to support 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. From Revenue’s analysis of employer PRSA contributions in 2023, it appeared some cases suggested behaviour that was not in keeping with the policy intention of the changes and advised officials in my Department of these concerns. My Department was first made aware of this in 2024 following Revenue’s analysis of data relating to employer PRSA contributions in 2023. Revenue also submitted a paper to my Department during this time outlining their findings and concerns regarding how the provisions are operating.

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.

In terms of the analysis my Department has undertaken since the enactment, as the change took effect from 1 January 2025, data corresponding to these changes is not yet available.

The process of ensuring that taxation relief is availed of in an appropriate manner is ongoing and continuous and involves Revenue and my Department working closely together to monitor developments, assess data and, where necessary, amend provisions to avoid misuse.