Pension changes announced
The Finance Bill 2024 introduces significant changes to the pension landscape, impacting Personal Retirement Savings Accounts (PRSAs), the Standard Fund Threshold and the new Auto Enrolment system.
The Finance Bill has not yet been signed into law, so modifications to the Bill can be made at any time, including adjustments to the effective date of these changes.
Changes to PRSAs
Employer Contribution Limit: employer contributions to PRSAs will now be capped at 100% of the employee’s emoluments in the year of payment ( ‘Employer Limit’ ). Contributions exceeding this limit will be treated as a Benefit in Kind (BIK).
Tax Deductibility: contributions within the cap remain tax deductible for employers, maintaining a significant incentive for businesses to contribute up to the allowable limit.
Maximise Tax Efficiency: you can continue to optimise their pension contributions within the PRSA if the employer contributions do not exceed the employee’s emoluments in the year of payment. Financial advisers should highlight the importance of staying within these new limits to avoid unnecessary tax liabilities.
This new limit is likely to be more restrictive than funding limits which apply to occupational pension schemes such as a Retail Master Trust.
Standard Fund Threshold (SFT)
Incremental Increases: from 2026 until 2029, the SFT will increase in annual increments of EUR 200,000 from EUR 2 million to EUR 2.8 million e.g., in 2026, the SFT will increase to EUR 2.2 million, in 2027 to EUR 2.4 million etc.
Tax Free Cash Limit: The tax-free lump sum will remain at EUR 200,000 and the maximum lump sum will remain at EUR 500,000 after the increases in the SFT are implemented. These limits will not increase in line with increases on the SFT.
Inflation Adjustment: from 2030, the SFT will be adjusted annually with an earnings factor ensuring that the threshold remains relevant and beneficial.
Chargeable Excess Tax Rate: the current chargeable excess tax rate of 40% remains unchanged, however, earmarked for review.
Auto Enrolment
Introduction of Auto Enrolment: the Finance Bill 2024 legislates for the introduction of the automatic enrolment pension scheme, which it is envisaged will start from September 2025.
Employer and Employee Contributions: both employer and employees will be required to contribute to the new auto enrolment scheme. Employee contributions will not attract tax relief. Instead, a top up contribution from the Government will be provided. Employee deductions are taken from net pay.
Opportunity - time to discuss your plan
The Finance Bill 2024 brings substantial changes to the pension system in Ireland.
Pension funding in Ireland transcends mere financial strategy; it is a gateway to a secure and fulfilling retirement. With demographic shifts and economic dynamics shaping the retirement landscape, understanding the key numbers associated with pension funding is fundamental to building a resilient financial future. As individuals take charge of securing their retirement, pension funding stands out as a cornerstone for a prosperous and worry-free life after work.
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