PRSA and personal pensions 2025: The impact on the pensions landscape

There have been a number of changes to pensions, one of which is an increase in the Standard Fund Threshold (SFT). So, what does this mean and what are the benefits of the change?

What is changing for Personal Retirement Savings Accounts (PRSAs) and personal pensions? 

The three main changes to pensions are:

1. Increases to the Standard Fund Threshold (SFT)
2. Employer PRSA contribution limit changes
3. Tax changes if employer PRSA limits are breached

In the following paragraphs we will take a closer look at what these changes mean in more detail. 

Standard Fund Threshold (SFT) increase in 2026

From 1^st January 2026: The Standard Fund Threshold (SFT) is going to increase gradually to €2.8 million from 2026 to 2029 by €200,000 per year.  

The SFT is a cap on the total capital value of tax-relieved pension benefits that an individual can draw upon in his or her lifetime from all of their individual pension arrangements. Where this limit is breached, additional tax charges apply which are unfavourable for pension savers¹.

Prior to 1st January 2026: The SFT limit is €2 million. The current limit was introduced in 2014. 

So, what does this mean and who can benefit from this change? 

“The Standard Fund Threshold is the maximum tax efficient pension fund that an individual can accrue in Ireland,” Gerard Tyrrell, Pension Consultant, Technical Services at Zurich explains.

“A tax known as ‘chargeable excess tax’ of 40% applies immediately to the value of pension assets crystallised over the SFT,” he adds.

In September 2024 the government announced future increases to the SFT for pensions which starts next year (2026) and will benefit pension savers with large pension funds. According to Tyrrell: “The SFT has remained unchanged since 2014, which has prompted calls for some time for the limit to be reviewed to allow for the impact of the changes in the cost of living and wage growth in the intervening period.

“In 2023, the government commissioned a targeted review of the SFT system which was led by an independent expert, Dr. Donal de Buitléir. The report made several recommendations to modernise and update the operation of the SFT which included the increase to the limit by €200,000 per annum for a period between 2026 and 2029. By 2029, the SFT will be €2.8 million.”

Tax changes if employer PRSA limits are breached

From 1^st January 2025: An employer can contribute to a PRSA up to 100% of the employee or director’s salary. If this limit is exceeded the excess is treaded as Benefit In Kind (BIK) and so taxed as income.

Prior to 1st January 2025: The rules around employer PRSA contributions have changed a number of times in recent years. Tyrrell explains: “As recently as January 2023, there had been no upper limit on employer contributions to PRSAs. This led to large increases in employers funding PRSA’s for employees in particular for company directors.

“The new limits will now restrict that ability to fund somewhat, but overall, the employer limit of 100% of salary for an employer contribution to a PRSA should be sufficient for most employees. It should also be noted that employee contributions to a PRSA are not included in that limit and employees can also maximise their own personal age-related limits under a PRSA.”

Employers tax deductions on PRSAs 

From 1^st January 2025: Employers tax deductions on PRSAs contributions are now limited to 100% of the employee’s or directors’ salary². That means that the maximum employer contribution to a PRSA that can be tax-relieved by an employer and would not trigger a BIK for the employee, is now 100% of the employee’s total salary in the relevant year.

Although these new rules are more restrictive than what was possible in 2023 and 2024, the funding rules under PRSAs remain straightforward and may favour some employees that have already significantly funded under an occupational pension scheme. Employee contributions to the PRSA do not form part of these employer limits, so employees may maximise their own age-related personal contribution limits whilst not impacting the employer limits (100% of salary) which are set out above.

“The previous changes to PRSA employer limits in 2023 prompted many pension savers to switch their retirement plan to a PRSA. The more recent changes in January of this year will mean that those plans need to be reviewed to determine if those individuals are best served under a PRSA or if a Master Trust would be more appropriate. In all cases, it is important to consult a financial advisor who can take into account your individual needs and circumstances,” Tyrrell concludes.

If you need to discuss your situation, get some advice from your broker or financial advisor who can talk you through the pension changes and your options.

Talk to a financial advisor

The information contained herein is based on Zurich's understanding of current Revenue practice as at 1st March 2025 and may change in the future. 

Sources:

¹Gov.ie: Changes to SFT

²Gov.ie: Finance Bill 2024