Autumn is the time when farmers gather their crops, and gardens start to fade. It’s marked by the autumnal equinox, a day when daylight equals nighttime, and both find balance. As we approach winter, autumn is often seen as the beginning of the end.
This gives it a sense of impending gloom, a sadness in the air, and a reminder that all things will eventually end. It reminds us that winter is approaching, and we must prepare to embrace the oncoming change.
Autumnal changes have coincided with several Pension changes this year.
INCREASE IN THE STANDARD FUND THRESHOLD
The Standard Fund Threshold limits a person’s pension to €2 Million. A positive recent change is the government’s announcement of plans to increase the amount of money higher earners can have in their pension pot without facing a significant tax bill.
Under the changes, the Standard Fund Threshold (SFT) will rise to €2.8m in four equal phases each year between 2026 and 2029.
- 2025: €2,000,000
- 2026: €2,200,000
- 2027: €2,400,000
- 2028: €2,600,000
- 2029: €2,800,000
For 2024 and 2025, the limit will remain at €2,000,000.
It’s important to remember that if you exceed the Standard Fund threshold, you’re charged chargeable excess tax, which attracts a 40% tax. On drawdown, you’re also taxed at the marginal rate. This can lead to an effective income tax rate of up to 68.8% on the excess funds, with 40% incurred upfront and the balance collected on drawdown.
Thankfully, with a future Standard threshold of €2,800,000 most people will be within limits. This is a positive change for pensioners.
PRSA CHANGES
A Personal Retirement Savings account is one of the most flexible pension structures in the marketplace. It has undergone many changes over the last couple of years. Before 2023, the contribution levels were based on a percentage of salary.
In 2023, legislation changed, allowing employers to pay an unlimited amount into an employee’s Pension, subject to the €2 million threshold. This was very attractive because it enabled business owners to inject significant sums into their pensions if their cash reserves allowed it. Unfortunately, some employers abused this change. Revenue has since decided to close this loophole.
From 2025, employers can only pay 100% of their emoluments into a PRSA starting in 2025.
This is still more advantageous than the rules pre-2023.
- A Company owner with a high remuneration package, say €100,000, can now make an employer PRSA contribution of €100,000, with complete confidence that the PRSA contribution is allowable for corporation tax relief, and will not attract income tax, USC, or PRSI for the director.
- The limit is 100% of emoluments, including salary, bonus, and BIK, such as car allowance.
- If a spouse aged 50 is a director and performs some significant duties, it may be reasonable to pay a salary and BIK of €70,000 per annum. The employer could then make a PRSA contribution of €70,000 per annum, and the spouse director could make a personal contribution of €24,500 and claim personal income tax relief on that amount. So, the taxable salary becomes €45,500, and the total PRSA contribution becomes €94,500.
- The PRSA still offers the advantages of gradual retirement of the fund and payment of the full fund as a lump sum on death.
- If the new PRSA tax relief regime has fewer advantages than the traditional salary and service tax regime, you can opt for a Master Trust Pension.
NEW AUTO-ENROLMENT SCHEME
The New Auto Enrolment Scheme, also known as My Future You, will begin on September 30, 2025. It will force 800,000 workers to set up a Private Pension scheme or use the default auto-enrolment option. The starting contribution will be 1.5% of Gross Salary, rising to 6% in 10 years. Please note that for higher-income earners, it is more advantageous to set up a Private Pension scheme, and for lower-income earners, generally, it is better to set up through AE.
Overall, there are more positive changes than negative ones. Pensions are still one of the best ways to invest your money in the longer term. You get tax relief on entry, tax-free growth as it accumulates, and a tax-free lump sum at retirement. Please also remember the tax-free growth post-retirement through an Approved Retirement Fund.
If you have any pension queries, please email me at eoin@purefinance or contact me at 086-7954972.
Happy Halloween!
