During his Budget speech, the Minister announces the headline changes; those that will grab headlines and in an election year, those measures that will win votes. A couple of weeks later, the Finance Bill is published, which contains all the details and the changes that didn’t make the speech. Pensions were largely absent from the Budget speech, just the removal of that awful pension tax. In the Finance Bill, the much welcomed removal of USC from employer paid PRSA was announced, which was something that the industry has lobbied for for a number of years.
Employer paid contributions to a PRSA’s were deemed to be a Benefit in Kind (BIK), with the pension relief on the contribution offsetting the income tax due on the BIK. When the USC was introduced in 2011, it applied to all Benefits in Kind. It probably didn’t suit the government to remove it as it would be less money to collect. From 1 January 2016, 5 years after it was introduced, it is being removed from employer contributions.
It certainly helps. A big plus for PRSA’s from an employer point of view is that there are no trustee requirements. The pension plan is set up under contract and the employer doesn’t have to worry about additional trustee obligations as well as their other duties in running their business or the cost of paying for a professional trustee.
From an employee point of view, it is obviously better that they don’t have to pay USC on their employer contributions when those in Occupational Pension Schemes don’t have to.
Another big advantage from an employee point of view is that the full value of the benefits are there from day 1. Under Occupational Pension Schemes, you have to be in pensionable employment for 2 years to be legally entitled to your employers contributions. With a PRSA, once the money is paid in, it’s yours.
PRSA’s are still not the one policy for life that they were marketed as when they were introduced in 2002 (that’s another blog post altogether) but at least employee’s aren’t unfairly taxed more than those in occupational pension schemes.
If you have any questions, contact me directly at steven@bluewaterfp.ie