In USA political circles, they coined the phrase an “October surprise” in the 1980s to describe a last-minute, unexpected event that can change the course of a November Presidential election. The current election campaign has already had an unprecedented number of surprises, but it is still a 50/50 toss-up to predict a winner. Perhaps there will be another plot twist before the finale that might change the course of history.

Back in Ireland, the October Finance Bill sprung a surprise of a different kind on pensions tax relief, to follow up on the increase in the pension fund limit to €2.8M. The new development from the Finance Bill is that corporation tax relief on employer contributions to a PRSA will now be capped at 100% of that year’s emoluments. This is expected to come into effect from January 2025, but the effective date and the details are yet to be finalised.

Some in the pensions industry have greeted this with great disappointment, but in our view, this brings clarity to the situation and is a reasonable compromise. The revised PRSA tax relief regime also offers more scope and advantages than meets the eye. For example:

1. A company owner and director of any age, with a high remuneration package of say, €250,000, can now also make an employer PRSA contribution of €250,000 with full confidence that the PRSA contribution is fully allowable for corporation tax relief and will not attract income tax, USC or PRSI for the director.
2. The limit is defined as 100% of “emoluments” so that includes, salary, bonus, and BIK, such as a car allowance.
3. If there is a spouse aged 55 who is a director and performs some significant duties, it may be reasonable to pay salary and BIK of €100,000 per annum. The employer could then make a PRSA contribution of €100,000 per annum, and the spouse/director could make a personal contribution to the PRSA of €35,000 and claim personal income tax relief on that amount. So, the taxable salary becomes €65,000 and the total PRSA contribution is €135,000 which is 207% of net taxable salary/BIK.
4. The PRSA still offers the other advantages of gradual retirement of the fund and payment of the full fund as a lump-sum on death, but if the new PRSA tax relief regime is less advantageous than the traditional salary & service tax regime, then they can opt for a Master Trust pension instead of a PRSA.
5. The new regime is expected to come into effect in January 2025, which is an official recognition that there is currently no limit on the tax relief available on employer contributions to a PRSA. So, November may be busy on the pensions and political front.

Tom Clinch
MD & Head of Technical Services