Employer contributions to Personal Retirement Savings Accounts (PRSAs) in Ireland are a big topic of discussion, especially as to whether these contributions should be taxed as a Benefit-in-Kind (BIK). Employers’ contributions to PRSAs at present do not constitute taxable income for their employees since this measure was designed to encourage people to save for retirement. However, this tax break has raised questions about fairness and economic implications. 

What Are PRSAs and BIK? 

PRSAs were created to offer a more flexible way of saving for retirement, particularly for those without occupational pension schemes. Both employees and employers can put money into these accounts which are eligible for tax relief, making them attractive options. 

Benefit-in-Kind (BIK) refers to benefits or perks that come with your job and are part of your taxable income. These could be things such as company car(s), health insurance etc. Normally such benefits are taxed but employer’s contribution into the PRSA is non-taxable at the moment. 

Why Some Support the BIK Exemption 

Encourages Saving: The main aim of exempting from Benefit In Kind is to encourage both employers and employees to contribute towards their retirement savings. This policy is aimed at increasing savings since many people do not save enough for their retirement years. 

Financial Security: By encouraging more retirement savings, the government hopes to reduce future reliance on state pensions and welfare. 

Administrative Ease: Not having to account for Benefit In Kind on PRSA contributions makes things simpler for employers, potentially encouraging more firms to provide this benefit. 

Why Others Oppose the BIK Exemption 

Tax Fairness: Critics argue that all other employment related benefits should be treated uniformly under taxation purposes. But why aren’t other non-cash benefits like PRSA contributions taxed? 

Lost Revenue: Government loses revenue through the tax break, therefore the money could be used to provide healthcare and education among other public services. 

Income Inequality: Low-income workers get little benefit as compared to their higher-income counterparts who may obtain considerable refunds from employers. 

What Should You Do Now? 

There may be an opportunity in which you can take advantage of current regulations before this year’s budget scheduled for October 2024. If you are thinking of increasing your PRSA contributions or have an employer that makes such contributions now might be the right time to do it. This is because any future changes can affect the current tax advantages so it is wise that one maximises his/her contributions under the present rules. 

Stay informed, plan ahead and talk to us today about your retirement savings strategies to ensure you exploit all available tax benefits, before any changes occur.