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As a financial broker specialising in pension planning, it’s important to keep you informed on upcoming changes and opportunities to maximise your retirement savings.
Automatic Enrolment Retirement Savings Scheme (AE):
The Finance Bill 2024 introduces the taxation framework for the new Automatic Enrolment Retirement Savings Scheme (AE). This scheme is set to transform retirement savings, particularly for employees without existing pension plans.
- Tax Benefits: Like PRSAs, employer contributions to AE are tax-relieved, growth in AE funds is tax-exempt, and funds are taxed on drawdown. Employees can withdraw 25% as a lump sum, with the first €200,000 tax-free, amounts between €200,000 and €500,000 taxed at 20%, and anything above €500,000 taxed at 40%.
- No Employee Tax Relief: Since the state contributes directly to AE for employees, no tax relief is available for employee contributions.
Standard Fund Threshold (SFT):
Changes are also expected to the Standard Fund Threshold (SFT), which currently limits the capital value of pension benefits an individual can draw tax-free. The SFT is currently set at €2 million, but starting in 2026, phased increases of €200,000 per year are planned until it reaches €2.8 million in 2029. This is crucial for high-earning individuals looking to maximise their pension contributions without incurring additional taxes.
Social Welfare Pensions:
Budget 2025 also brings positive news for the State Pension (Contributory), with a confirmed increase of €12 per week, raising the personal rate to €289.30 from January 2025.
Pensions – No Changes in Key Areas:
- Employer Contributions: Corporation Tax relief remains unchanged on employer pension contributions to Occupational Pension Schemes.
- PRSA Contributions: No Benefit-in-Kind (BIK) charge on employer PRSA contributions, and there is currently no cap on these contributions.
- Tax Relief for Employees: Pension contributions will continue to qualify for tax relief at the marginal rate, within the Revenue’s age-related contribution limits and earnings cap.
- Retirement Lump Sum: Up to €200,000 remains tax-free, with amounts between €200,000 and €500,000 taxed at 20%.
As always, these changes present significant planning opportunities. If you’re interested in optimising your pension strategy in light of these updates, contact us today, and we can guide you through the next steps.