The Background
Pension legislation is constantly changing – tax relief limits, allowable contributions, retirement ages, eligible investment types, etc.
European legislation transposed into Irish law in 2022 brought an abrupt end to the main pension planning route for company owners – Executive Pension Plans, also known as Small Self-Administered Schemes.
The market found a solution toward the end of 2022 in the form of Master Trusts. This was a welcome development, but with certain drawbacks.
The New Opportunity
Even better news emerged with the signing into law of Finance Act 2022 in December.
Employer contributions to Personal Retirement Savings Accounts (PRSAs) were previously restricted to age and earnings limits for tax relief purposes. From January 2023 these restrictions have been removed, meaning that an employer can now make unlimited BIK free contributions to a PRSA for an employee.
Company owners can once again make large contributions to pension accounts for themselves and employed family members – in many cases much larger than those previously available with Executive Pensions, or with the new Master Trusts.
This is a major planning opportunity for company owners, including owners of investment companies and property rental companies. The traditional SME with husband and wife co-directors can now more efficiently fund their pensions, securing their personal financial future and integrating with their long-term business planning (entrepreneur relief, retirement relief etc.)
To illustrate the opportunity with an example: a 45-year-old company owner earning €115,000 could make a tax-efficient company contribution of maximum €28,750 to a PRSA in 2022 (€40,250 if aged 55). Contribution limits no longer exist, meaning the company could now make a single contribution of any amount with no BIK implications.
As always with pension planning there are a lot of factors to be considered, varying rules/restrictions, and pros/cons of each decision to be analysed. This is where trusted, transparent, and professional advice is crucial – along with a robust financial plan incorporating lifetime cashflow projections.
Please get in touch to discuss in more detail.
John McWey
Ardbrack Financial Limited
021-4773833/083-4115277
Disclaimer: The content of this article is for general information purposes only. It does not constitute tax or investment advice as it does not take into account the investment objectives, knowledge and experience or financial situation of any particular person or persons. You are advised to obtain professional tax and investment advice suitable to your own individual circumstances. Ardbrack Financial Limited makes no representations as to the accuracy; validity or completeness of the information contained herein and will not be held liable for any errors or omissions.
