Directors Retirement: PRSAs v Executive Pensions

The changing Pension Landscape

Prior to the passing of the Finance Act 2022, the main structure considered by Company Directors to fund for their Retirement was an “Executive Pension Policy (EPP)” this was due to the level of contributions that could be made by their company on their behalf when compared to a “Personal Retirement Savings Account policy (PRSA)” along with the tax treatment of contributions into these respective policies.

The Finance Act 2022 has changed both of these considerations which we explore in this article:

What’s a PRSA (PRSA)?

A PRSA is a structure or policy that allow you and / or your employer to contribute in the policy to accumulate funds that can be used to provide you and your family with an income for the rest of your life after you turn 60; or from 50 subject to strict Terms and Conditions. 

The PRSA is portable and transferable, allowing you to take it with you if you decide to move jobs or start a new business / career.

The funds in the plan are tax-neutral until retirement, which means that any accumulated growth is not taxed before retirement.

The PRSA is under the control of the employee at all times and is their asset.

What’s an Executive Pension (EPP)?

An EPP is also a structure that allows your employer to contribute into the policy for the employee’s future benefit.  Any contributions made by the employer while Tax Free are subject to certain limits.

The EPP is under the stewardship of the appointed Trustee, and they work to ensure that the policy meets the Revenue and Legislative requirements at all times.

While the funds accumulated in an EPP can be transferable, any request to do so would have to be agreed with the appointed Trustees and maybe restricted due to the pension rules. 

What has changed:

The main change that has occurred is how Company or Employer contributions are viewed. Prior to January 2023, any employer contribution was treated as a Benefit in Kind for the employee and subject to deductions.

Also, any contribution made by an company or employer reduced the scope for the employees to make their own contributions, this restriction no longer applies.

What does this mean; in theory should an employer wish to it could make a contribution of up to the employees Personal Lifetime Pension limit of €2 million in at any time and the company can receive corporation tax relief in the year that the contribution is made.

Comparing PRSA’s to EPP’s

	EPP	PRSA
Level of Contributions Allowed	Subject to Upper Limit Based on Salary & Service	No Upper Limit
Tax Treatment for Employee	No Personal Liability	No Personal Liability
Tax Treatment for Employer	Allowable against Corporation Tax, subject to conditions	Allowable against Corporation Tax in the year paid with no limit.
Access age	From Age 60 if continuing to Work. From Age 50 if left service	From Age 60 if continuing to Work. From Age 50 if service and no longer working
Death Benefit	If Working – Tax Free Up to 4 times final remuneration If left service fully tax free to estate	Fully tax free to estate at all times
Flexibility at retirement	All pensions must be paid at the same time	Payments can be phased if multiple PRSA’s are in place.
Tax Free Lump Sum Options at Retirement (Subject to Lifetime limit)	25% of pension value Lump Sum based on Salary and Service	25% of pension value
Options with Balance of Funds	Establish a fixed income for life. Invest funds into an Approved Retirement Fund (ARF) and receive required income	Establish a fixed income for life. Invest funds into an Approved Retirement Fund (ARF) and receive required income

If you would like to explore and discuss the new rules and how they may apply to you, your company or your employees, please email [email protected] with any queries or call 087 2872206 to talk.