The Finance Bill, published on the 11th of October, 2024, brings some important changes to how pensions and Personal Retirement Savings Accounts (PRSAs) work in Ireland. These updates are going to impact both employers and employees, especially company directors. Below is a breakdown of the key changes that will affect PRSAs, employer contributions, and the introduction of Auto Enrolment.
Important Changes to PRSA and Pensions in 2025
1. Employer Contributions to PRSAs Now Limited to 100% of Salary
The big news is that employers can only contribute up to 100% of an employee’s or director’s salary to a PRSA.
So, if someone earns €50,000 in 2025, their employer can contribute up to €50,000 to their PRSA for that year—no more. This sets clear boundaries for contributions and keeps everything tied to the salary level.
2. Excess Contributions Count as Benefit in Kind (BIK)
If the employer goes over that limit, the extra amount will be treated as a Benefit in Kind (BIK). This means the extra contribution will be taxed as income for the employee or director.
For example, if the employer contributes €60,000 to a PRSA for someone earning €50,000, the additional €10,000 will be taxed as part of the employee’s income.
3. Tax Deductions for Employers
Employers can still get a tax deduction on their PRSA contributions, but only up to the 100% salary cap. So, if they contribute more than the salary, the company won’t be able to claim a tax break on the extra amount, and the employee will face a tax bill for that over-contribution.
4. Changes to the Standard Fund Threshold (SFT)
The Bill also discusses changes to the Standard Fund Threshold (SFT), the limit on how much you can save in your pension without facing extra tax penalties. This mostly affects higher earners or people with large pension funds.
The Standard Fund Threshold (SFT) will increase following the recommendations in the recent Department of Finance report.
- Increased to €2.2M in 2026.
- Increased to €2.4M in 2027.
- Increased to €2.6M in 2028.
- Increased to €2.8M in 2029.
Starting in 2030, the Standard Fund Threshold (SFT) will increase in line with the Earnings, Hours and Employment Costs Survey.
The legislative link between the Standard Fund Threshold (SFT) and the maximum retirement lump sum will be removed. Instead, the standard chargeable amount will be set at €500,000, minus the tax-free portion, which currently stands at €200,000.
5. Auto Enrolment Is Coming
Auto-enrolment is a new pension savings scheme for certain employees who are not paying into a pension.They will automatically join the scheme but can opt out after six months. The introduction of the Auto-Enrolment Retirement Savings Scheme, called My Future Fund, will start from 30 September 2025.
Under the scheme, the employee, employer, and Government all pay a certain amount into the employee’s pension fund. The government will establish a new public body—the National Automatic Enrolment Retirement Savings Authority—to manage the auto-enrolment scheme. The Pensions Authority will oversee and supervise the scheme’s operation.
You will be automatically enrolled in the new pension scheme if you are an employee and:
- You are aged between 23 and 60.
- You are not currently part of a pension plan.
- You earn €20,000 or more per year.
If you previously contributed to a pension but no longer do, and you meet the other conditions, the system will automatically enrol you. If you earn under €20,000 a year or fall outside the 23 to 60 age range, you can still choose to join the pension scheme—provided you’re not already enrolled.
What Should You Do Next?
- Employers: Make sure that your pension contributions are in line with the new 100% salary cap. Contributing too much could result in unexpected taxes for both your company and your employees.
- Employees and directors: Review how the new rules could affect your retirement savings, and plan ahead to avoid tax penalties if your contributions exceed the new limits.
- High Earners: If your pension fund is close to the SFT, now’s a good time to seek financial advice to avoid extra tax penalties.
This Finance Bill introduces some significant updates and changes to PRSAS and PENSION. It’s important for company directors, employers and employees to understand these changes, stay compliant, and plan ahead to avoid any surprises when the new rules come into effect. At Power Wealth Advisors, we offer holistic Financial Planning Service, which include to assess your current pension set up, see how does it fit into achieving your overall Financial Planning goals, and we will present you with all your options and recommend other financial product implementations where required.
Schedule a Consultation with our financial advisor at Power Wealth to discuss how these changes may affect your pension.
Source:Gov.ie
