The 100% PRSA cap: extracting company cash into an Irish pension

The two-year window that closed

For a brief period an Irish owner-director could move a large slice of company cash into a personal pension with no benefit-in-kind charge and no link to salary, and Finance Act 2024 closed that from 1 January 2025. The route was the Personal Retirement Savings Account, the PRSA, and for the 2023 and 2024 tax years an employer could contribute to a director's PRSA in amounts that bore no relation to the director's pay, limited in practice only by the overall fund ceiling. It was the most efficient corporate-cash-extraction tool available to a profitable Irish company, and it is now substantially narrowed.

This is the extraction question in the founder's toolkit, and it sits alongside the two exit routes rather than replacing them. Selling the business is dealt with in Revised Entrepreneur Relief, and passing it to the next generation in Retirement Relief and the €10 million cap. This article is about the step many owners take before either: getting surplus cash out of the company efficiently, so that what is eventually sold or passed on is a clean trading business rather than a company stuffed with retained cash. The pension route was the cleanest way to do that, and the rules changed under it.

How employer PRSA funding used to work

Before 2025, an employer could contribute almost without limit to an employee's PRSA because Finance Act 2022 had stripped out the two constraints that used to apply. Historically, an employer contribution to a PRSA counted towards the employee's age-related percentage limits and was tied to their remuneration, so it could not greatly exceed what the individual could have funded personally. From 1 January 2023, Finance Act 2022 removed the benefit-in-kind charge on employer PRSA contributions and removed the link to salary, so the contribution was neither taxed on the employee nor capped by their pay.

The effect was a planning opening that owner-directors used heavily. A company sitting on retained profits could make a very large employer contribution to the director's PRSA, get a corporation tax deduction for it, and move that cash into the director's pension with no income tax, no benefit in kind, and no salary-based ceiling, constrained only by the Standard Fund Threshold on the total tax-relieved fund. For a director with a modest salary and a cash-rich company it was far more efficient than paying the money out as salary or a dividend. Revenue has since described this as a window it did not intend to leave open, and it is now carrying out a review of PRSA funding in the 2023 to 2025 period. The opportunity was real while it lasted; it was also always likely to be closed.

The 100% cap: what changed on 1 January 2025

Finance Act 2024 reintroduced a limit by making any employer PRSA contribution above 100% of the employee's emoluments a taxable benefit in kind, with effect from 1 January 2025. The mechanism is not a ban; it is a benefit-in-kind charge on the excess. An employer contribution up to 100% of the employee's emoluments for the year remains free of benefit in kind, as before. Any employer contribution above that 100% figure is treated as a taxable benefit in kind on the employee, so it is charged to income tax, USC and PRSI in the employee's hands, which removes the tax efficiency that made the uncapped route attractive. The same 100%-of-emoluments limit applies to employer contributions to a Pan-European Personal Pension Product, the PEPP, so switching product does not avoid it.

The practical result is that employer pension funding is once again tied to salary. A director paid €150,000 can receive an employer PRSA contribution of up to €150,000 in the year without a benefit-in-kind charge; a director paid €40,000 is limited to €40,000. The very large contributions relative to a small salary that defined the 2023 to 2024 planning no longer work, because the part above 100% of pay is taxed. The link between what a person earns and what their employer can put into their pension, which Finance Act 2022 had removed, has effectively been restored.

What the cap means for an owner-director

For the owner-director, the cap re-couples pension funding to remuneration, which changes how much cash can leave the company through the pension each year. The director who kept their salary low, for dividend or other reasons, and relied on a large uncapped employer PRSA contribution to build the pension, now faces a choice: raise the salary so that a larger employer contribution stays within 100% of emoluments, or accept a smaller pension contribution, or find another route for the surplus cash. Raising the salary has its own income tax, USC and PRSI cost, so the pension contribution is no longer a way around remuneration tax; it is once again a function of it.

This does not make the PRSA useless. A well-paid director can still direct an employer contribution equal to their full emoluments into the pension free of benefit in kind, which for a high salary is a substantial annual figure, subject to the overall fund ceiling below. What has gone is the ability to move a sum many times the salary into the pension in a single year. For a company with a large retained-cash balance and a plan to sell or pass on the business, that means the extraction has to be spread over more years, or combined with the other routes, rather than done in one efficient pension sweep.

The pension fund ceiling is rising, but it still bites

Above the annual contribution question sits a lifetime ceiling on the tax-relieved value of a pension, the Standard Fund Threshold, and after more than a decade frozen it is now rising. The Standard Fund Threshold was set at €2 million from 2014 and stayed there until 2025. Following an independent review, it rose to €2.2 million on 1 January 2026 and increases by €200,000 each year to reach €2.8 million by 2029, after which it will be indexed to wage growth. It is the cap on the total tax-relieved value a person can build across all their pension arrangements, not an annual contribution limit.

The threshold still bites at the top. Where the value of a person's pension benefits exceeds the Standard Fund Threshold when they are drawn, the excess is subject to a chargeable excess tax at 40%, before the normal tax on the pension income itself, so over-funding beyond the ceiling is penalised rather than merely disallowed. Vested PRSAs are also subject to imputed distribution rules, under which a notional annual drawdown is taxed whether or not the funds are actually withdrawn. For an owner-director building a large pension, the rising threshold gives more headroom than the frozen €2 million did, but the ceiling and its excess charge remain a real constraint that has to be modelled alongside the annual 100% limit.

Where extraction sits before an exit

Getting cash out of the company is the step that precedes a sale or a succession, and doing it well makes the exit relief cleaner. A trading company that has accumulated a large cash or investment balance carries a problem into any exit: under Revised Entrepreneur Relief the 10% rate is for chargeable business assets, and surplus investment cash may not attract it; under Retirement Relief the value passed to a child counts against the €10 million cap whether it is trading value or idle cash. Extracting the surplus before the exit therefore serves two purposes: it puts the cash into the owner's hands or pension efficiently, and it leaves behind a cleaner trading company that qualifies more cleanly for the relief.

The pension route is one lever among several, and with the 100% cap in place it is a smaller one than it was. The realistic plan for a cash-rich company approaching an exit now usually combines a sensible level of salary and employer pension funding within the cap, a dividend policy, and the timing of the exit relief itself, spread over the years before the sale rather than compressed into a final scramble. The reliefs and the extraction are one plan, and the closing of the uncapped PRSA route means that plan has to start earlier and use more than one tool.

What an owner-director should do now

The response to the cap is to plan pension funding annually and in step with salary, rather than treating the PRSA as an unlimited sweep. The practical steps are to set the director's remuneration with the 100% employer limit in view, so that intended employer contributions stay within emoluments; to model the total fund against the rising Standard Fund Threshold and the chargeable excess tax, so that building the pension does not create a top-end charge; and to plan surplus-cash extraction over several years using salary, pension and dividends together rather than one large contribution.

Above all, the extraction question should be joined up with the exit question. An owner who intends to sell or pass on the business within a few years should be taking surplus cash out along the way, within the new limits, so that the company sold or transferred is a clean trading business and the exit relief applies to as much of the value as possible. The uncapped PRSA route that made this easy is gone; the underlying discipline, of not letting idle cash accumulate in a company that is heading for an exit, matters more now, not less.

Frequently asked questions

What is the employer PRSA contribution limit in Ireland?

Since 1 January 2025, under Finance Act 2024, an employer contribution to an employee's PRSA is free of benefit-in-kind only up to 100% of that employee's emoluments for the year. Any employer contribution above 100% of the employee's salary is treated as a taxable benefit in kind on the employee, charged to income tax, USC and PRSI. The same 100%-of-emoluments limit applies to employer contributions to a PEPP. Employer pension funding is therefore once again tied to the employee's pay.

What changed, and what was the "loophole"?

Finance Act 2022 removed the benefit-in-kind charge on employer PRSA contributions and the link to salary from 1 January 2023, so an employer could fund an employee's PRSA with large amounts unrelated to their pay, limited only by the fund ceiling. Owner-directors used this to move company cash into a pension very efficiently. Finance Act 2024 closed the window from 1 January 2025 by making contributions above 100% of emoluments a taxable benefit in kind, and Revenue is reviewing PRSA funding in the 2023 to 2025 period.

Is the 100% cap the same as the €115,000 earnings limit?

No, they are different limits that can both apply. The €115,000 cap limits the earnings on which an individual can claim age-related tax relief for their own personal contributions. The 100% cap is new and governs how much an employer can contribute to an employee's PRSA without triggering a benefit in kind. One concerns the employee's own contributions and their relief; the other concerns the employer's contributions and the benefit-in-kind charge. A person can be affected by both.

How much can an employer still contribute to a director's PRSA?

Up to 100% of the director's emoluments for the year, free of benefit in kind, subject to the overall Standard Fund Threshold on the total fund. A director paid €150,000 can receive an employer PRSA contribution of up to €150,000 without a benefit-in-kind charge; a director paid €40,000 is limited to €40,000. Contributions above 100% of salary are still possible but are taxed as a benefit in kind on the director, which removes the efficiency, so funding is effectively capped at salary.

What is the Standard Fund Threshold in 2026?

The Standard Fund Threshold, the cap on the total tax-relieved value of a person's pension, was €2 million from 2014 until 2025. It rose to €2.2 million on 1 January 2026 and increases by €200,000 each year to reach €2.8 million by 2029, after which it is indexed to wage growth. Where pension benefits exceed the threshold when drawn, the excess is subject to a chargeable excess tax at 40%, so it is a real ceiling on how large a tax-relieved pension can be built.

Does the cap apply to a PEPP as well as a PRSA?

Yes. The 100%-of-emoluments limit introduced by Finance Act 2024 applies to employer contributions to a Pan-European Personal Pension Product, the PEPP, in the same way as to a PRSA. Moving from a PRSA to a PEPP does not avoid the cap. The measure was drawn to cover both products precisely so that the treatment could not be sidestepped by choosing a different personal pension vehicle.

Is the PRSA still worth using for an owner-director?

Yes, within the new limit. A well-paid director can still have an employer contribution equal to their full emoluments paid into a PRSA free of benefit in kind, which for a high salary is a substantial annual amount and remains a corporation-tax-deductible way to fund a pension. What has gone is the ability to move a sum many times the salary into the pension in a single year. The PRSA remains a useful extraction and retirement tool; it is simply no longer an uncapped one.

How does pension extraction fit with selling the business?

They are part of the same plan. A company that accumulates surplus cash carries a problem into an exit, because idle cash may not attract the 10% rate under Entrepreneur Relief and counts against the €10 million cap under Retirement Relief. Extracting surplus cash efficiently before the exit, now spread over several years within the 100% pension cap and combined with salary and dividends, leaves a cleaner trading company for the relief. The pension question and the exit question should be planned together, and started early.

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The uncapped employer PRSA was the most efficient way an Irish owner-director could turn company cash into personal pension wealth, and for two years it was open. Finance Act 2024 tied pension funding back to salary from 2025, so the contribution is once again a function of what the director earns, capped at 100% of emoluments, and the fund is still bounded by a Standard Fund Threshold that is rising but real. The PRSA is not closed to the owner-director. It is simply no longer a way to empty a company into a pension in a single year.

Critical advisory. The jurisdictional frameworks set out above carry strict liability and retroactive tax exposure. Executing these structures without institutional-grade tax architecture is a primary trigger for Revenue and HMRC audits. To mitigate systemic risk and discuss bespoke structuring, initiate a confidential briefing with our Managing Partners.