Employer PRSAs, maximum pension size & pension taxation

There is no obligation on an employer to provide a pension scheme for employees. However, employers in some sectors are obliged to provide a pension plan.

Employer investment into a PRSA

Any employer contributions made to a PRSA on your behalf are treated as a Benefit-in-Kind (BIK). While these contributions do qualify for income tax relief, they don't qualify for relief from PRSI or the Universal Social Charge.

Earnings limit and maximum pension fund size. The maximum earnings limit from 2015 is €115,000. The earnings limit is subject to review and change each year. You may only claim tax relief within the above limits. There are also limits on the benefits that may be provided.

There is a maximum Revenue-allowable total pensions fund on retirement. This is known as the Standard Fund Threshold (SFT).From 1 January 2014, the maximum pension fund allowable for tax relief purposes has reduced from €2.3 million to €2 million (this maximum amount includes any pension benefits already taken together with pension benefits yet to be taken).

The maximum applies to the combined value of all pension provision held for an individual. Any fund in excess of this amount is liable to a once-off income tax charge at the top rate of tax (currently 40%) when it is drawn down on retirement. This limit may be adjusted annually in line with an earnings index.

Please note that the Revenue Commissioners have also placed limits on the total amount that can be contributed by you and your employer to your occupational pension plan.

Taxation of pension benefits.

While you may receive tax relief on your contributions as they are invested in your pension arrangement, your benefits may be taxed as you take them at retirement. Any pension you receive will be subject to income tax under the Pay As You Earn (PAYE) system and may also be subject to the Universal Social Charge. While you may be able to receive some lump sum benefits tax free, other lump sum benefits may be subject to tax.

Want to know more? We are available to discuss your options, and we look forward to hearing from you.

Our job is to help you choose a product and structure that will help you meet your goals.

telephone | 091441188 and/or email | office@nelsonlife.ie

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Nelson Life Limited trading as Nelson Life is regulated by the Central Bank of Ireland.

WARNING: Past performance is not a reliable guide to future performance. WARNING: The value of your investment may go down as well as up. WARNING: You may lose some or all of the money you invest. WARNING: These funds may be affected by changes in currency exchange rates. WARNING: If you invest into this product you will have access until you retire (Pension Products). WARNING: The above content does not constitute investment advice, as it does not take into account the investment objectives, knowledge and experience of financial situation of any particular person. Prospective investors are advised to make their own assessment of the information contained herein and to obtain professional advice suitable to their own individual circumstances. WARNING: The information contained in this document is based on our understanding of current tax legislation and the current Revenue Commissioners interpretation thereof and is subject to change including retrospectively without notice. This is intended as a general guide only and is not a substitute for professional tax, legal and investment advice.