News

There have been some regulatory changes over the last year to the types of pensions an employer can set up for their employees. For many years there were two types of plan an employer could use; an Executive Pension (also known as a Company Pension) or a Personal Retirement Savings Account (PRSA).

The main differences between these two plans were:

1. the wider range of retirement options provided by the Executive Pension.
2. the fact that an employer does not have to contribute to a PRSA plan, whereas they must contribute to an Executive plan if they go that route.
3. the tax treatment of employers contributions.
4. the level of employer contributions to an Executive plan does not reduce the amount the employee can contribute; whereas age-related limits apply to a PRSA.
5. PRSA is owned and controlled by the employee; whereas an Executive plan must be written under trust and the Trustees (often the employer) has certain responsibilities that have become more onerous and expensive to maintain over recent years.

The biggest change has been the introduction of the new IORP II regime from the EU. IORP II is a comprehensive and wide-ranging suite of legislation that seeks to enhance and harmonise governance and management standards of occupational pension schemes across the European Union. It introduces new requirements for Irish occupational pension plans, both defined benefit and defined contribution, covering a number of areas including governance and risk management, plan management and member communications, and places pension plans, trustees and employers under far greater regulatory supervision.

Because of this, all new Executive Pension plans must be written under a Master Trust. A Master Trust allows an employer to retain a high-quality and value for money retirement savings arrangement for employees, while at the same time being able to outsource all aspects of management and regulatory compliance. Essentially, a Master Trust provides the same features as an Executive plan, but removes much of the compliance responsibility from the employer.

The other big change was the way in which employer contributions to a PRSA are treated. Previously, if an employer paid into a PRSA plan for their employee, the employee was liable for Benefit-in-Kind (BIK). Also, as mentioned earlier, the total amount of contributions could not exceed their age-related tax relief limits.

As of January 2023, both these issues have been removed, meaning that an employer can contribute any amount into a PRSA for their employee and there will be no BIK applied. This is only limited by the maximum amount allowed in any pension pot (the Standard Fund Threshold, currently €2 million). An employee contribution is still limited for tax relief depending on their age; however, the employer contribution no longer affects this.

These changes all have implications for both employers and employees. In particular, the changes to PRSAs have opened things up for Company Directors wanting to fund their own pensions. As always, a Qualified Financial Advisor should be able to answer any questions you may have.

Sean Sweeney, QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on sean@jfl.ie