PRSA Contributions – Points You Need to Consider

This blog outlines a number of points to keep in mind the following points when setting up and contributing to a PRSA:

• Whilst the ability to make large contributions to a PRSA appears to be here to stay, it is worth speaking to your financial advisor about this opportunity now.

• Excess fund tax is still something that needs to be planned for and thought out, as it still applies to a PRSA and any other pension pots you may have that totals over €2m.

• Adjustments to existing salaries for the purpose of diverting funds to PRSA contributions would be deemed as salary sacrifice and wouldn’t be allowed in the context of the Benefit in Kind exemption.

• If you have funds in an investment company, you will need to be a Schedule E employee to receive contributions from the company. And whilst early retirement is possible and you are not required to sell your shareholding, you will need to cease being an employee and stop drawing a salary.

• One scenario that can arise is when an individual holds a PRSA and occupational scheme funded by the same employer. For this we need to consider:

• That whilst funding a PRSA from an employer is unlimited, if an employee also holds an occupational pension under the same employer, it could be subject to funding limits.

• If a large contribution was made to the PRSA, the occupational scheme funding would have to include the PRSA value as a current benefit, which could run the risk of an overfunding issue.

It would be prudent to do a funding check on the occupational scheme before making the PRSA contribution. Alternatively, you could first wind up the occupational scheme (assuming there is no existing funding issues), transfer to the PRSA and then fund the large PRSA contribution, which would eliminate the future funding issue.