Personal Retirement Savings Accounts: Navigating the new landscape

A Personal Retirement Savings Account (PRSA) is a long-term savings account designed to help people save for their retirement. PRSA products are approved jointly by Revenue and the Pensions Authority, offering a flexibility that has made them increasingly popular among both employers and employees. While anyone may contribute to a PRSA, the entitlement to tax relief on these contributions has been subject to evolving regulations, with the most significant changes haven taken effect from 1 January 2025.

Finance Act 2024 brings significant changes to PRSA planning, fundamentally altering how employer contributions are treated and creating new opportunities and potential pitfalls that require careful navigation.

The evolution of PRSA tax treatment

Understanding today's changes requires appreciating the dramatic shifts in PRSA taxation over recent years, reflecting the government's evolving approach to retirement savings incentives.

The Restrictive Years (pre-2023)

Until 31 December 2022, employer contributions to employee PRSAs were aggregated with employee contributions when calculating maximum tax relief limits. When combined contributions exceeded the employee's age-related percentage limits, this could result in benefit-in-kind charges. This treatment significantly limited the attractiveness of employer-funded PRSAs for many employees.

Unrestricted Contributions (2023-2024)

Finance Act 2022 abolished the benefit-in-kind charge entirely, removing the previous requirement for employer contributions to be aggregated with employee contributions. While this opened possibilities for enhanced employer contributions, Finance Act 2024 has now introduced limits to provide clearer boundaries for both employers and employees.

The Balanced Framework (2025 onwards)

Finance Act 2024 introduces a more measured approach. While maintaining that reasonable employer contributions should not trigger immediate tax charges, it creates more defined limits on contribution levels while keeping the system attractive for genuine retirement savings.

The new employer contribution rules

The cornerstone of the new regime is the "employer limit"—the maximum amount an employer can contribute without creating a benefit-in-kind charge for the employee.

The 100% salary cap

Employers may contribute up to 100% of an employee's total annual emoluments without triggering a BIK charge. Emoluments include all compensation: basic salary, bonuses, overtime, commissions, and other benefits-in-kind. This comprehensive approach ensures the limit reflects total compensation rather than just basic pay.

Crucially, Revenue assesses this through year-end reconciliation. Employers review the position at 31 December, comparing total PRSA contributions made during the calendar year against actual emoluments earned. This approach simplifies administration but creates important planning considerations.

Revenue's updated guidance

Revenue's Chapter 24 of the Pensions Manual, updated in May 2025, provides essential clarity on practical implementation. The guidance confirms that assessment occurs only at year end, regardless of contribution timing, and includes detailed examples covering both straightforward and complex scenarios.

The year-end assessment challenge

While year-end assessment simplifies administration, it introduces potential unexpected consequences requiring careful management. Contributions made early in the year based on projected salaries are assessed against actual 31 December earnings, regardless of changed circumstances.

Practical risk scenarios

• The Maternity Leave Impact: Sarah earns €50,000 annually. Her employer contributes €30,000 in February. Sarah subsequently takes extended unpaid maternity leave, reducing her actual annual emoluments to €25,000. At year-end, €5,000 (€30,000 - €25,000) becomes taxable as a benefit-in-kind.
• The Career Change: Michael earns €50,000 annually and receives a €30,000 January contribution. He leaves his job in June, having earned €25,000 from this employer. The excess of €5,000 (€30,000 - €25,000) creates a BIK charge.
• The Part-Time Transition: Lisa earns €50,000 annually and receives a €40,000 contribution in March. She reduces to part-time hours mid-year due to family circumstances, resulting in €30,000 annual emoluments. The excess of €10,000 (€40,000 - €30,000) becomes taxable at year-end.

These scenarios demonstrate why the new regime, despite appearing administratively simpler, requires thoughtful planning and ongoing risk management.

Corporation tax implications

The new rules align BIK treatment for employees with corporation tax deductibility for employers, ensuring consistent treatment across both sides of the employment relationship.

Deductibility rules

Employers may claim corporation tax deductions for PRSA contributions up to the employee's annual emoluments. Contributions exceeding this limit are not deductible, regardless of timing or the employer's accounting year end. The employee's calendar year emoluments determine deductible amounts, even spanning multiple employer accounting periods.

This creates a double penalty for excess contributions (no employer deduction plus employee BIK charge), strongly incentivising compliance with limits.

Strategic planning recommendations

For employers

Monthly contributions generally present lower risk than annual lump sums, allowing adjustments based on changing circumstances. Implement quarterly reviews of contribution levels against projected emoluments, particularly for employees who might experience significant changes.

Documentation becomes crucial. Maintain clear records of contribution decision bases, including salary projections and employee circumstances. For large contributions, obtain written employee consent and provide clear year-end charge warnings.

For employees

Take an active monitoring role. Communicate immediately about circumstances affecting annual emoluments: planned extended leave, hour reductions, or job changes. For substantial employer contributions, understand potential year-end charges for personal financial planning.

Timing considerations

Year-end assessment creates timing opportunities. Later-year contributions carry inherently lower risk as annual emoluments become more predictable. For variable compensation employees, deferring contributions until bonus confirmation prevents unexpected exposures.

The broader pension context

Standard fund threshold changes

The SFT increases from €2 million by €200,000 annually from 2026-2029, reaching €2.8 million, then indexing to average earnings growth from 2030. However, maximum tax-free retirement lump sums cap at €500,000 regardless of SFT increases, breaking the traditional link between the SFT and lump sum entitlement.

These changes particularly benefit individuals who have not yet accessed their pension benefits. Those who have already drawn pension benefits may find that their previous withdrawals reduce how much additional benefit they receive from the SFT increases, due to how the legislation calculates previously used portions of the threshold.

Auto-enrolment impact

Auto-enrolment launches on 1 January 2026, automatically enrolling employees aged 23-60 earning €20,000+ in the "My Future Fund" unless already in qualifying pension arrangements. Employers using PRSAs must ensure arrangements meet auto-enrolment criteria to avoid operating parallel systems.

Employers may wish to consider establishing qualifying pension arrangements for their workforce in advance of the auto-enrolment deadline, as this could provide greater control over pension provision and potentially more favourable terms than the standard auto-enrolment scheme.

Forward planning opportunities

The new PRSA framework requires tactical adjustments to contribution strategies. For high earners approaching the SFT, the phased increases from 2026-2029 allow for extended pension accumulation periods, enabling substantial contributions over multiple years rather than single large payments.

Companies with variable compensation structures should implement quarterly contribution reviews rather than annual planning. This approach allows adjustments based on actual earnings patterns and reduces year-end exposure risks.

Timing becomes crucial under the new regime. Later-year contributions carry inherently lower risk as annual emoluments become more predictable. For employees with significant bonus components, deferring contributions until Q3 or Q4 can prevent unexpected BIK charges while maintaining tax efficiency.

Conclusion

Finance Act 2024 marks the end of unrestricted employer PRSA contributions and introduces a more structured regime that balances opportunity with clear boundaries. While the new rules require more careful planning and regular monitoring, substantial scope remains for tax-efficient retirement savings.

Success depends on understanding both the opportunities and the pitfalls within the new framework. Employers and employees who invest in proper planning and establish ongoing review processes will find that PRSAs remain attractive and flexible retirement solutions. However, those who fail to adapt their approach risk facing unexpected tax charges that proper preparation could easily prevent.

Revenue's updated guidance demonstrates the importance of getting the details right. Professional advice has become essential for successful navigation of these rules. The financial and reputational cost of getting it wrong significantly outweighs the investment required to implement proper planning from the outset.

These changes to PRSA taxation occur alongside broader developments in Ireland's pension landscape. With auto-enrolment launching in 2026 and SFT increases taking effect from 2026, retirement planning is becoming more complex. For those who understand and plan for these changes effectively, the opportunities remain substantial.

Our experienced tax team are here to answer any queries that you might have. Contact us to learn how you can make smart decisions today that deliver lasting value for your business.