Pension Changes in the Finance Bill 2024

The Finance Bill 2024 introduces significant changes to the pension landscape, impacting Personal Retirement Savings Accounts (PRSAs), the Standard Fund Threshold and the new Auto Enrolment system. We are happy to provide you with the following detailed summary of these changes, tailored for financial advisers to effectively communicate the benefits and implications to your clients.

It is important to remember that although these changes were announced, the Finance Bill has not yet been signed into law, which typically takes place in December of each year. During this period, modifications to the Bill can be made at any time, including adjustments to the effective date of these changes.

Changes to PRSAs

• Employer Contribution Cap: employer contributions to PRSAs will now be capped at 100% of the employee’s emoluments in the year of payment. Contributions exceeding this limit will be treated as a Benefit in Kind (BIK).
• Tax Deductibility: contributions within the cap remain tax deductible for employers, maintaining a significant incentive for businesses to contribute up to the allowable limit.
• Maximise Tax Efficiency: clients can continue to optimise their pension contributions within the PRSA if the employer contributions do not exceed the employee’s emoluments in the year of payment. Financial advisers should highlight the importance of staying within these new limits to avoid unnecessary tax liabilities.

There may be an opportunity from now until when the provisions under the Finance Bill are enacted to maximise single premium employer contributions to PRSAs. Please note that the granting of tax relief is, as always, based on Revenue rules.

However, in some cases this new limit is likely to be more restrictive than funding limits which apply to occupational pension schemes such as the Aviva Retail Master Trust which may now become more attractive than funding via a PRSA.

Standard Fund Threshold (SFT)

• Incremental Increases: from 2026 until 2029, the SFT will increase in annual increments of €200,000 from €2 million to €2.8 million e.g., in 2026, the SFT will increase to €2.2 million, in 2027 to €2.4 million etc. The tax-free lump sum will remain at €200,000 and the maximum lump sum will remain at €500,000 after the increases in the SFT are implemented. These limits will not increase in line with increases on the SFT.
• Inflation Adjustment: from 2030, the SFT will be adjusted annually with an earnings factor ensuring that the threshold remains relevant and beneficial.
• Chargeable Excess Tax Rate: the current chargeable excess tax rate of 40% remains unchanged but will be reviewed before 2030.

Financial advisers can highlight the benefits of the increased SFT for high-net-worth clients, allowing those in scope to accrue larger pension benefits without incurring a chargeable excess tax liability. However, please bear in mind that individuals who have already utilised the previous limits will likely not benefit from these increases in the SFT.

Auto Enrolment

• Introduction of Auto Enrolment: the Finance Bill 2024 legislates for the introduction of the automatic enrolment pension scheme, which it is envisaged will start from September 2025.
• Employer and Employee Contributions: both employer and employees will be required to contribute to the new auto enrolment scheme. Employee contributions will not attract tax relief. Instead, a top up contribution from the Government will be provided.

Financial advisers should contact their employer customers to discuss auto enrolment and alternative options such as group pension schemes, one member arrangements and PRSAs. Financial advisers are in a unique position to advise these customers in understanding their obligations under the new auto enrolment scheme and the benefits of participating or alternatively setting up a different pension arrangement such as a group pension scheme or PRSA to avoid penalties.

Conclusion
The Finance Bill 2024 brings substantial changes to the pension system in Ireland. Financial advisers play a crucial role in helping their clients navigate these changes optimising their pension contributions and plan for a secure retirement. By leveraging these updates, advisers can provide valuable insights and strategies to enhance their clients’ financial well-being.