Over the past 3 years, the actual best pension option for self-employed directors has changed 3 times!

Not because Financial Advisors and Planners were flip-flopping on their options (or trying to churn new business!), but because Revenue rules kept changing!

We wrote about that 2 years ago here for example, when PRSAs, all-of-a-sudden replaced Self Administered schemes as the no-brainer pension scheme to use as a director.

And things have changed again as of January 2025!

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So to help clear any confusion, and to light the way for directors that need to know, I'll share the following;

-The main pension planning options for directors in 2025

-The best pension option for self employed directors in different situations

-What to keep an eye-out for if you are moving or switching pension scheme in Ireland

The Main Pension Options for Directors in 2025

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Since January 1, 2025, new rules have been implemented that significantly impact employer contributions to Personal Retirement Savings Accounts (PRSAs). Under these changes, employer contributions are now capped at 100% of an employee or director’s salary. Any contributions exceeding this threshold will be taxed as a benefit in kind. This is a massive shift from the more flexible rules in 2023 and 2024, when the only limit on employer PRSA contributions (usually for a director) was the overall fund limit of €2 million (at the time).

The previous €2 million cap had provided a valuable opportunity for entrepreneurs who might have previously prioritised business growth over personal pension planning, allowing them to build up a decent retirement fund in a short space of time, cashflow permitting of course! It also offered a chance for individuals who had taken career breaks to compensate for lost pension savings.

With these new restrictions in place, company directors, business owners, and employees who have relied on substantial employer contributions may now need to reconsider their pension strategy. They face a choice: either continue with a PRSA under the new rules/contributions, or explore alternative options, such as setting up a pension scheme under a master trust.

The Small Self-Administered Scheme is all-but dead as of 2025 with all trustees (at the behest of the Pensions Authority - there were too many for them to oversee basically).

As of 2025, the two options available are the PRSA, or the Master Trust.

With careful planning and depending on your working years completed and remaining, and salary etc, you can still accumulate significant pension assets through either a PRSA or a master trust.

Master Trusts as an Alternative

You may be funding a PRSA, and are wondering if a Master Trust would be better?

Firstly, if you are considering a master trust, it’s crucial to understand that it is an Occupational Pension Scheme, (as was the old SSAS), and so has specific rules around what can and can't be contributed etc. The total pension contributions, and future expected payout from an occupational scheme such as a Master Trust typically depends on a member’s years of service and final salary. For an individual retiring at the standard retirement age after 40 years of service, the maximum pension they can receive is two-thirds of their final salary. We are talking 'Revenue Max Funding Calculations' and risks of over-funding etc, of which there are none with a PRSA. As a result, building both salary and service duration is essential for maximising Employer pension contributions to a Master Trust.

Looking at 3 fictional scenarios for PRSA or Master Trust suitability

Scenario 1 - Reasonable Service and Relatively High Gross Salary, Relatively Young:

Jenny is 45 years of age (that's young right!?)- has €300k in a company funded PRSA, salary of 120k Gross, and has 10 years service in her business, and normal retirement age of 65.

How much can my business put into my Master Trust, Jenny asks....

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So, Jenny's company could put €93k into her Master Trust per year.

Or, if Jenny's biz had the wherewithal to, it could put a lump sum into the Master Trust now, for previous years of deemed 'under-funding', of almost €400k lump sum, and then a reduced amount of c€72k per year from next year on to 65 years of age.

As we know, if sticking with PRSA, the company could put €120k per year into that for her, but no lump sum. So a PRSA would be optimal assuming she didn't want to put a large lump sum in now.

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Scenario 2 - Reasonable Service and Relatively High Gross Salary, But Older!

Jenny is instead a little older now, at 55 years of age - has €300k in a company funded PRSA, salary of 120k Gross, and has 10 years service completed in her business, and normal retirement age of 65.

So instead of above scenario, where she had 20 years to go to Retirement age, here she only has 10 years to go:

Big difference here, as she has relatively short time to go to build up the maximum pension entitlement under Revenue rules.

Here the Master Trust enables her business to put almost €200k into her Master Trust every year between now and 65 (10 years of €200k = €2m + growth etc).

Here the Master Trust would offer greater potential for large employer contributions.

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Scenario 3 - Short Service, and Relatively Low Gross Salary, Relatively Young!

Jenny is 45 years of age (again)- has €300k in a previous employer company pension, salary of 60k Gross, and started her business in 2020, so 5 years service in her business, and normal retirement age of 65.

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We can see straight-away that employer scope to contribute to a Master Trust here is limited to c60% of her current €60k salary. Plus, given the relatively short service and the relatively decent previous pension from old employment she has, zero scope for back-service lump sum.

PRSA would allow her company contribute €60k here very straight-forwardly, if it wished to.

In summary response to the question 'Which is better PRSA or Master Trust?', it really depends on the salary, service, age and accumulated benefits.

Some scenarios will indicate Master Trust, while many others will indicate PRSA is optimal.

But there are other considerations too...

Weighing the PRSA Option

Despite the new restrictions, continuing with a PRSA may still be a feasible choice for many individuals. It is unquestionably the most straight-forward and risk-free (in terms of Revenue maximums and potential over-funding issues at draw-down).

A maximum employer contribution equal to 100% of salary can still enable pension accumulation, depending on earnings.

Directors and business owners are often slow or reluctant to pay themselves a full or fair wage, as many dislike tax more than they like income! I can't argue with that, but also believe we should ensure we pay ourselves a sufficient salary, which will now also allow decent pension contributions!

Additionally, directors can make personal contributions to their PRSA, with tax relief available on pension contributions of up to 40% of salary, depending on age.

Jenny above, at 45 years of age, is entitled to (separate to employer contributions) pay 25% of her Gross annual salary into her PRSA or Master Trust, and get full 20/40% Income Tax relief. If she were on €120k, that is limited to 25% of €115k (115 being the limit). So that is €28,750 into a pension, and get €11,500 tax relief at the higher rate :).

Those aged 60 and above benefit from the highest tax relief rate and should take full advantage of this allowance, if they can.

Key Considerations When Choosing Between a PRSA and a Master Trust

Before making the switch from a PRSA to a Master Trust, we should carefully evaluate the associated costs, planned retirement age, target pension fund size, and investment preferences. Master Trusts usually offer fewer investment options compared to PRSAs, which could be a deciding factor for some.

The costs of the advice and implementation of a Master Trust ought to be considered, whether that is transparent fees, or commissions paid from your pension scheme.

PRSAs, providing they do not limit you unnecessarily on the employer-contribution side, offer distinct benefits that may make them more appealing than master trusts for many directors. Notably, PRSAs do not impose a lump sum limit on death-in-service benefits, whereas master trusts restrict the lump sum payout to four times the member’s annual salary at the time of death.

Additionally, individuals can hold multiple PRSAs, enabling phased retirement, whereas benefits from a Master Trust must be drawn down in full at the same time, they cannot be split in the same was as a PRSA can (which is a massive tax-planning tool we use for many clients).

But be warned, if you are planning to try to move your pension to Malta or oversees in the future, the PRSA (currently) is not the ideal vehicle to try do that with. An Occupational Pension Scheme is the scheme which is most easily moved to such places, we understand. Seek advice on this if its on your radar!

Upcoming Changes to the Standard Fund Threshold (SFT)

Another critical factor for people with substantial pension savings is the Standard Fund Threshold (SFT). The SFT represents the maximum pension fund value that can be accumulated through tax-relieved pension arrangements, before heavy tax hits. Under current Irish Revenue rules, the SFT is set at €2 million, with any excess subject to a 40% Chargeable Excess Tax (CET). However, under Finance Bill 2024, the SFT is set to increase by €200,000 per year between 2026 and 2029, eventually reaching €2.8 million. This expansion offers more flexibility for individuals looking to enhance their pension savings over time, provided they and/or their businesses and employers have the financial means, and desire, to do so!

Conclusion

The changing landscape of pension regulations presents self-employed directors and company owners with yet more decisions regarding their retirement savings. There is never a dull moment dear reader!

Whether sticking with a PRSA or transitioning to a Master Trust, individuals would be well-served to assess their options carefully, considering factors such as salary structure, tax efficiency, and long-term retirement goals.

Given the complexity of these changes, seeking independent financial advice is (I believe) crucial before making any major pension-related decisions.

I hope this piece helps!

Paddy Delaney QFA RPA APA

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