This week I bring you some facts, no metaphors, no story, just facts about recent and important pension changes in Ireland! Key highlights in this very no-nonsense article:

• Important changes to PRSAs and what can be contributed to them
• Upcoming changes to UK State Pension benefits (applicable to all those in Ireland with some time accrued in HMRC UK State Pension)
• Recent changes to Lump Sums from foreign pensions (including Malta etc.)

This non-nonsense issue is being produced and presented last minute. This is based on the fact that I screwed-up, and lost a recent podcast interview audio file immediately prior to publishing!

I always look for the silver lining to bad news, and the silver lining is that instead of that really great interview chat, you get to hear and read about some very important pension changes instead! That’s a little tongue-in-cheek, but these are important, and it is worth knowing about them, or re-reading them.

If any of the above 3 applies to you, this could cost, or make you, a lot of money.

Important PRSA Pension Changes in Ireland

Last year, changes to pension regulation meant that many people who had an Executive Scheme or Self Administered Scheme (SSAS) had to transfer to PRSA. And as of summer last year, anyone who wanted an Exec or SSAS scheme, couldn’t actually open one, thanks to the Pension’s Authority implementation approach of IORPS II.

At the time, the pension rules meant that a business owner, if they wanted to contribute to a pension was largely restricted to contributing to a Personal Retirement Savings Account (PRSA). PRSAs are fine, however, at the time, there was quite a limited ceiling on what companies could contribute to PRSAs for directors. In addition, any individual whose employer contributed over certain levels to their PRSA faced very stiff taxation in the form of Benefit In Kind (BIK).

The 2022 Finance Act has now entirely removed BIK being applied to employer contributions to PRSAs! And this took effect on 1 January, 2023. See Irish Statute Book Section 22 here for more facts on this.

This massive pension change here in Ireland means that a company can now, in theory, make unlimited contributions of company cash to a PRSA (being mindful of the €2m SFT of course!). This makes it particularly advantageous for directors of a business to contribute cash from the business into a PRSA for themselves or for any employed loved one or relative!?

It now allows for these monies to be fully and legitimately removed from the business, and into your name (or the name of any employee, even related ones!) within a regulated tax-advantaged and regulated pension structure.

We believe that the company now also gets full Corporation Tax relief in the year it makes the contribution. These aspects are even more advantageous than certain contributions to Exec and Self-Administered SSAS schemes in the past.

Who knows how long this opportunity will remain, particularly if it becomes a politic hot potato! We are actively assessing every client’s scenario to identify any potential opportunities that this change may present, to enhance their own current and future financial security. If you are in a position, it may be prudent to explore your own tax and financial advice to explore any possible opportunity for you.

UK State Pension Changes
 

Not a direct pension change in Ireland but if you have an employment record in the UK from a past life, which gives you eligibility for the UK State Pension, so listen up! New legislation is coming into effect that will limit the time period where you are allowed to fill contribution gaps, and to bump up the amount of State Pension you will get from HMRC.
 
This new rule limits the time period to up to 6 previous years, so you cannot fill in gaps older than that. However, there is currently a limited time that allows you to fill gaps going back to 2007. This scheme is apparently only available until 5 April 2023.
 
If you have gaps, taking advantage of this cost-effective scheme could potentially have a significantly positive impact on the amount you get as a UK State Pension over the long term. As we know, State Pensions are as close to a Defined Benefit Pension scheme as any of us are going to get, so it might be worth visiting the HMRC website to explore any potential cost-effective opportunity.

Foreign Pensions Tax Changes

Again, not direct pension changes in Ireland, but it is linked to Irish residents’ benefits. On the 1st of January, 2023, new tax legislation came into effect via the Finance Act, section 19 that relates to lump sums taken from foreign pensions. I believe there was a scramble by some, to get their tax-free lump sums out of foreign pensions pre-Christmas, in order to try to avoid this change, and understandably so!

This particularly affects retirement lump sums you may take from foreign pensions in future. And it will likely increase the amount of tax you pay, if resident in Ireland. If you are living in Ireland and hold a pension outside Ireland, this may hurt.

Particularly if you have pensions in Malta or other ‘tax advantageous’ locations. Up to 2023, many were able to take tax-free lump sums from foreign pensions, as well as tax-free lump sums from their Irish Pensions. But it appears that was too good to be true, that door appears firmly shut thanks to the Finance Act.

I hope it helps.

Paddy.

And do seek your own tax and financial advice before taking action – this is not advice, this is for information purposes only per our Disclaimer.