Why the new EII may not be the job creation initiative it appears to be........

Sonia McEntee comments on the introduction of the Employment and Investment Initiative (EII) in the Sunday Business Post

PRSAs and USCs – How not to do it!

The PRSA was introduced to increase private pension coverage - it’s a consumer-friendly product, very transparent, mobile and above all flexible.

Both an employer and employee can contribute to a PRSA and from an employer perspective there is no need to create a group pension fund. Employers, particularly multinationals, had started to favour PRSA’s as a part of an overall remuneration package.

In the context of pension schemes, employer contributions to PRSAs are taxable on the employee as a benefit-in-kind. However, the employee could claim tax-relief up to the normal age-related pension limits, so in general there was no tax liability arising.

With the passing of the 2011 Finance Act, which saw PRSI extended to certain types of pension contributions, and the introduction of the Universal Social Charge (USC), the unfortunate employee, with a PRSA as his company pension vehicle, gets hit with a double whammy - the employer and the employee contributions are subject to both PRSI and USC.

As employer contributions are treated as if they were made by the employee and effectively added to the pay of the employee, employer contributions to a PRSA now attract a USC liability ranging from 2% of the first €10,036 up to 7% on sums over €16,016 plus PRSI of 4% (on amounts over €127 per week).That’s an 11% hit on pension contributions for virtually all employees on monies they will not be receiving until they retire.

Meanwhile employer contributions to a self administered pension scheme are, quite rightly, not subject to either the USC or PRSI.   

The impact of a potential 11% hit on PRSA contributions by an employer was probably unintentional.  However it will very quickly kill that market.

An example of how not to do it – we live in hope that the new government will realise the damage that is being caused and reverse the Finance Act changes.  

Paul Gilmer

Three Strikes - Are We Out. Follow up Interview

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