PRSAs – Don’t ruin it for everyone

Do you remember when you were smaller and your mum would let you and your brothers and sisters take something from the sweet press? And instead of taking one thing, you took loads of sweets? So she took away all the sweets?

There was excitement in the pensions world with the annual funding limits being removed on PRSAs this year. The annual limits for company pensions have always been very generous, so exceeding it was never an issue for most people. But for some business owners, the cash was in the company to aggressively fund their pension. The limits were especially annoying for company owners who purposefully keep their earnings low and accumulated cash in their business. As company pension contributions were linked to salary, they were limited on how much they could put into their company pension each year. With the new PRSA rule, they can put in as much as they want up to the overall funding limit of €2 million.

Bona Fides

Some have seen this as an opportunity to get as much money out of a company as possible but it has to be done in the correct manner. If you are a director of a company and not drawing down a salary, you are not eligible to make pension contributions. Start taking a salary and put money into your pension. You cannot employ your spouse for a day and pay them €1 salary and put €1 million into their pension. You can’t give your child some work experience and load up their PRSA.

The employment has to be bona fides. If you are thinking you are pushing the limits on what is real, it has failed the test. Life companies have already had to warn some advisors that they won’t accept applications if they receive proposal forms under employments like those described above. And remember, the proposal form asks for the policyholder’s PPS number and the company’s tax registration number on the proposal form, so it is not hard for the Revenue to check.

 

And just like your mum taking your sweets away, if you push it too far, the Revenue will just take it away for everyone.

 

Steven Barrett

12 June 2023