Dáil Éireann Debate, Wednesday - 16 October 2024
94. Deputy Pearse Doherty asked the Minister for Finance the rationale for changes to the personal retirement savings accounts in the Finance Bill; the estimated savings to the Exchequer from the proposed changes; when the Tax Consolidation Act 1997 was last amended to change the treatment of PRSAs and PEPPs; the rationale for those changes; and if he will make a statement on the matter. [42092/24]
View answerI am advised by Revenue that, prior to 1 January 2023, where the combined contributions by an employer and an employee to the employee’s Personal Retirement Savings Account (PRSA) did not exceed the employee’s annual percentage limit (between 15% and 40% of “net relevant earnings”, varying depending on age, up to a maximum relieved salary of €115,000) the contributions were relieved from tax. However, where the combined contributions exceeded the applicable threshold, the amount above the threshold was treated as a taxable benefit in kind (BIK) in the hands of the employee.
Section 22 Finance Act 2022 removed the difference in treatment between PRSAs and occupational pension schemes. The amendment abolished the BIK charge on employer contributions to an employee’s PRSA. In addition, employer contributions to an employee’s PRSA are not counted towards an employee’s age and salary related percentage limits on tax deductible contributions. These changes were recommended by the Interdepartmental Pension Reform and Taxation Group (IDPRTG) with a view to improving and simplifying the pension landscape in Ireland. The report made the following recommendation to address the differences in tax treatment for occupational pension schemes and PRSAs: “The differential treatment of PRSAs for funding purposes should be abolished and employer contributions to PRSAs should not be subject to BIK”.
As with any change in tax policy, Revenue has actively monitored developments since the introduction of these changes in Finance Act 2022. The examination of employer contributions to PRSAs in 2023 identified a small number of cases that give rise to concerns. Revenue data shows that in these cases, the employer contributions to PRSAs were significantly higher that the salary associated with the employment and, in most of these cases, the employee for whom the contribution was made had a connection to the employer (for example, the company owner or a family member of the owner). Following consideration of the data, it would appear these cases are giving rise to behaviour that is not in keeping with the policy intention of the changes.
Section 12 Finance Bill 2024 aims to address these concerns. If enacted by the Oireachtas, the measure will provide for an “employer limit” on employer PRSA contributions of 100% of the relevant employee’s salary. Any contributions above the “employer limit” will be considered a BIK for the employee and therefore subject to tax. Where an employee’s salary in a particular year is lower than in the previous year because of unpaid leave such as maternity leave, parental leave or extended sick leave, the limit will be 100% of the employee’s emoluments for the previous year of assessment. In addition, an employer will only be able to take a deduction for Corporation Tax purposes for PRSA contributions for an employee up to the “employer limit”.
The changes outlined for PRSAs will also apply to employer contributions to Pan-European Personal Pension Products (PEPPs).
I am advised by Revenue that, due to the difficulty in predicting the behavioural responses to the policy change, it is not possible to robustly estimate the potential yield to the Exchequer.
