The Irish government’s Finance Bill, published on 11 October 2024, introduces key updates to pension rules that are set to take effect in 2025. These changes impact Personal Retirement Savings Accounts (PRSAs), employer contributions, and also bring in auto-enrolment for employees.
For company directors, these updates set clear limits on contributions, introduce new tax treatments for excess contributions, and provide guidelines to keep retirement savings closely aligned with income.
Overall, the new rules are designed to make pensions fairer and more manageable for both employees and employers. In this blog, we’ll go through the main points of these changes and explain what company directors need to know to prepare for them effectively.
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Lets explore the 5 new pension rules for company directors in 2025
1. Employer Contributions to PRSAs Restricted to 100% of Salary
One of the most notable changes is the new restriction on employer contributions to PRSAs, limiting them to a maximum of 100% of the employee’s or director’s annual salary. Under the new rule, employers cannot contribute more than the equivalent of the individual’s yearly salary to their PRSA.
Example:
If a director earns €50,000 per year, the employer can contribute up to €50,000 to their PRSA. Any contribution above this amount is not permitted, ensuring that contributions align closely with salary levels.
This new restriction provides clearer guidance on contribution limits and prevents overly large pension contributions that exceed an individual’s earnings, helping to keep contributions fair and balanced.
2. Excess Contributions Now Count as Benefit in Kind (BIK)
Under the new rules, any employer contributions that exceed the 100% salary restriction will be taxed as a Benefit in Kind (BIK). This means that any excess contributions will be considered as income for the employee or director and taxed accordingly, which could lead to an increased tax bill.
Example:
If an employer contributes €60,000 for a director earning €50,000, the additional €10,000 would be treated as income and subject to BIK tax. This new rule places a clear limit on contributions, which is important for employers to remember to avoid any unintended tax costs for both themselves and their employees.
3. Limited Tax Deductions for Employers Based on 100% Salary Rule
Employers are still eligible for tax deductions on their PRSA contributions; however, the tax deduction will only apply up to the 100% salary limit. Contributions beyond this salary limit won’t be eligible for tax deductions.
So, this means that any over-contributions could not only result in a higher tax bill for employees but could also reduce potential tax relief benefits for the employer.
4. Changes to the Standard Fund Threshold (SFT)
The Finance Bill also discusses potential changes to the Standard Fund Threshold (SFT), which sets a cap on how much an individual can save in their pension fund without facing additional tax penalties.
The SFT impacts those with higher earnings or larger pension savings, as any amount exceeding this threshold may be subject to tax charges.
The SFT will increase by €200,000 per year from 2026 to 2030. Currently the SFT is €2 million euro. This means by 2023 the SFT will be €2.8 million
Planning Ahead:
For high earners or those nearing the SFT, it’s advisable to consult with a financial advisor to avoid unexpected tax consequences. Being proactive can help individuals maximise their retirement savings within the allowable limits.
5. Auto Enrolment Coming Soon
Auto Enrolment is another major change introduced in the Finance Bill, and it will soon be implemented across Ireland. This system will require eligible employees to be automatically enrolled in a pension scheme, ensuring that both employers and employees contribute to retirement savings.
Auto Enrolment is part of a national effort to increase pension participation in Ireland, particularly among those who aren’t currently saving for retirement. While many details are still being finalised, this shift represents a significant change in the way pensions will be managed, bringing Ireland closer in line with other countries that already use auto-enrolment.
Read our more complete guide to auto enrolment here
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The rules are now in place for max pension contributions as part of salary and benefit in kind charges.
The standard fund threshold (SFT) will rise by €200,000 per annum from €2 million to €2.8 million over the period from 2026 to 2029.
The first Auto enrollment deductions are expected to be completed on 30th of September 2025.
Stay updated on the latest announcements to know exactly when the rules will apply.
The new rules affect both companies and individual savers, so here’s a guide to the next steps for everyone:
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For Employers:
Review your current pension contributions to ensure they follow the new 100% salary restriction. Exceeding this limit could result in unintended tax charges for both your business and your employees. By adjusting your contributions now, you can ensure compliance and avoid additional tax costs.
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For Employees and Directors:
Take note of how these new limits could impact your retirement savings. If you’re close to the salary restriction, it’s a good idea to plan ahead to prevent unexpected tax bills. Setting a clear retirement savings goal that aligns with the new contribution limits will help you make the most of your PRSA contributions.
- For High Earners and Those Nearing the SFT:
If your pension savings are nearing the Standard Fund threshold, consider seeking financial advice. A pension advisor can provide guidance on how to maximise your savings within the new limits and help avoid any additional tax penalties.
- For Everyone:
Keep an eye on updates regarding auto-enrolment, as this will impact pension savings for a wide group of employees across Ireland. Employers, in particular, will need to prepare for this new system to ensure that all eligible employees are enrolled and that contributions are handled according to the new guidelines.
The 2025 pension rules bring significant changes for company directors, from capped PRSA contributions to new tax treatments and the introduction of auto-enrolment.
However, these updates aim to simplify and improve the fairness of retirement savings, but navigating these changes can be challenging. To stay compliant and make the most of these new rules, it’s essential to plan ahead and understand your options fully.
Furthermore, for expert guidance on how these changes may impact your retirement plans, reach out to Greenway Financial. Our team is here to help you secure a solid financial future under the new regulations.
Can employers contribute more than an employee’s annual salary to their PRSA?
No, under the new 2025 pension rules, employer contributions to a PRSA are capped at 100% of an employee’s or director’s salary. This means that if an individual earns €50,000 per year, the employer can contribute up to €50,000 to their PRSA—no more. This new limit ensures that contributions remain directly tied to the employee’s salary level, setting clear boundaries for retirement savings
What happens if an employer’s contribution to a PRSA exceeds the salary limit?
If an employer contributes more than the allowed 100% of an employee’s or director’s salary to a PRSA, the excess amount will be treated as a Benefit in Kind (BIK). This means the extra contribution will be taxed as income for the employee or director. For example, if the employer contributes €60,000 for an employee earning €50,000, the additional €10,000 will be taxed as part of the employee’s income.
Can employers claim a tax deduction for contributions above an employee’s salary?
No, employers can only claim a tax deduction on PRSA contributions up to the 100% salary limit. If an employer contributes more than the employee’s annual salary, the company won’t be able to get a tax break on the extra amount. Additionally, the employee will be taxed on the excess contribution, leading to a higher tax bill for that overcontribution.
What is the Standard Fund Threshold (SFT), and how might changes affect me?
The Standard Fund Threshold (SFT) is the maximum amount you can save in your pension fund without facing additional tax penalties. The recent Finance Bill increases the SFT by €200,000 per year from 2026 until 2030.
The current Standard Fund Threshold (SFT) limit is €2 million. By 2030 the Standard Fund Threshold (SFT) will be €2.8 million.
If your pension savings are nearing the SFT, it’s a good idea to monitor updates and plan ahead to avoid any unexpected tax charges.
What is auto-enrolment, and how will it affect employers and employees?
Auto Enrolment is a new system introduced in the Finance Bill, requiring employees to be automatically enrolled into a pension scheme. Both the employer and the employee will be expected to contribute to this pension. This initiative aims to expand pension coverage across Ireland, especially for people who currently aren’t enrolled in any retirement scheme.
Although some details are still being finalised, auto-enrolment represents a major change in how pensions will be managed moving forward, encouraging more people to save for retirement.
The first date for deductions to be made is the 30th of September 2025. Read our more complete guide to auto enrolment here
When will the new pension changes take effect?
All changes are now in effect or have dates when they come into effect.
PRSA max contributions 100% of salary – in effect.
Standard Fund Thesholds – From 2026 increase start.
Auto-enrolment – First deductions from 30th of September 2025
