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 (SFT), and the new Auto Enrolment system. Here is a detailed summary of these changes, communicating the benefits and implications for you.

Note: 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.  Please note that this date could be brought forward given that it is likely that an election will be called in late November/early December.

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.
    • Advisers highlight the importance of staying within these new limits to avoid unnecessary tax liabilities.
  • Opportunity Before Enactment:
    • There may be an opportunity from now until the provisions under the Finance Bill are enacted to maximise single premium employer contributions to PRSAs.  Interestingly, the proposed new rules do not apply as yet.  Right now, there is a window of time whereby greater contributions can be made.     

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.
    • Example: 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.

Auto Enrolment

  • Introduction of Auto Enrolment:
    • The Finance Bill 2024 legislates for the introduction of the automatic enrolment pension scheme, which is envisaged to start from September 2025.
  • Employer and Employee Contributions:
    • Both employers 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.
  • Participant on Death:
    • In the event of a participant’s death, their personal representative ca apply to the Authority to access the balance in the participants investment account for distribution as part of their estate. For more information on this point, please click HERE.  As outlined in the Finance Bill, the value of the AE Fund is subject to Income Tax.  This may well be changed in the Finance Act before being transposed into Law.  If not, this is a significant negative step-change.  
  • Participant on Retirement:
    • Upon retirement, each participant will have their own pot of money that belongs to them. As you would expect, 25% (subject to the normal limits) is payable, tax free.  As per the Finance Bill, the remaining 75% is subject to income tax.  Once again, this may be corrected before the Act is passed.  If not, it is a significant weakness to the advancement of employee pensions 2.    

Conclusion

The Finance Bill 2024 brings substantial changes to the pension system in Ireland. As always, contact your Financial Adviser in Money Plus so that you can better understand these changes, optimise your pension contributions and plan for a secure retirement. By leveraging these valuable insights and strategies, you will significantly enhance your financial well-being.