Budget 2026 was a huge let-down for the many business owners and entrepreneurs who sacrificed their pensions in the early years of their career so that they could create a viable business to provide valuable and sustainable employment.
There was no mention in the October Budget of any row back or amendment to a 2025 rule change that limits tax relief on employer contributions to PRSAs to 100 per cent of salary.
This rule change, which sent ripples through Ireland’s business community, was a U-turn on measures brought in under Finance Act 2022, which rightly recognised the need to give business owners, often nearing retirement, the chance to catch up on their pensions in a tax-efficient way.
As a result of the Finance Act 2022 measures, apart from affordability, the only limit on large employer contributions to PRSAs in 2023 and 2024 was the then €2 million Standard Fund Threshold (SFT – the total capital value of pension benefits that an individual can draw down from tax-relieved pension arrangements in their lifetime).
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Small business owners shouldn’t be penalised for sacrificing their pension planning in the early years of their business
However, in January 2025 this progress was undone with the introduction of a new cap of 100 per cent of salary for employer PRSA contributions eligible for tax relief. Since then, many business owners have been unable to catch up on years of underfunding their pension, meaning they have effectively been punished for prioritising their business over their personal retirement.
In his response to a Dáil question on this issue over the summer, Minister for Finance Paschal Donohoe said that he had no plans to change the current rule which caps tax relief on employer contributions to PRSAs to 100 per cent of salary.
The Minister suggested that the rule change was necessary to prevent “abuse”, citing the results of an analysis by Revenue of employer PRSA contributions in 2023, where it appeared that behaviour in some cases “was not in keeping with the policy intention” of the measures introduced under Finance Act 2022.
Judging by a response to another parliamentary question on the issue earlier this year, it appears that there are fewer than 10 such cases and, of these, it is even unclear if there has been any abuse or misuse of the rule in place at the time.
It’s extraordinary that for the sake of such a tiny number of cases of potential abuse, the Government has overhauled the rules on pension tax relief for entrepreneurs and employers and, in doing so, penalised so many of them.
In our view, employers simply used the fairer limits in place in 2023 and 2024 to catch up on missed pension contributions, rather than to engage in aggressive tax planning. On this basis, there is little or no rationale or justification for the Government’s decision to limit the tax relief on employer contributions to PRSAs.
Many business owners have effectively been punished for prioritising their business over their personal retirement
It appears that one of the reasons behind the Government’s restricted tax relief on employer contributions was that there were some concerns that wealthy parents were funding massive PRSA contributions for their adult children.
But no evidence has been put forward to prove that this happened. Even if the Government was targeting these people, they can still make significant 100 per cent tax-free contributions to PRSAs.
In effect, the loophole – or people – which the Government was trying to clamp down on still exists.
While the Government missed its opportunity to acknowledge and undo its misstep in Budget 2026, it could have used the Finance Bill 2025 to make things right. We were disappointed to see it didn’t use this legislation to introduce measures to move towards a more balanced, equitable solution.
We don’t believe there is a need for the Government to go as far as reintroducing unlimited tax-relievable employer contributions to PRSAs. This would probably only irk those whose concerns prompted the U-turn in the first place.
Earlier this year, the Irish Tax Institute recommended that “at a minimum”, the tax-free limit on employer contributions to PRSA should be increased from 100pc to 125pc of the employee’s remuneration where the employee is 50 years of age or older.
However, we feel the Government should go further. There is strong merit in a targeted exemption that recognises the unique position of older, long-serving business owners. In this regard, the rules could be amended to allow unlimited employer PRSA contributions (still subject to the SFT) for individuals who meet certain criteria – for example, those over the age of 50 or those with more than five or 10 years of service in their company.
It’s extraordinary that for the sake of such a tiny number of cases of potential abuse, the Government has overhauled the rules
This would not create an open-ended tax shelter; it would simply allow business owners who have genuinely sacrificed pension funding to make up lost ground before retirement, in a responsible and regulated way.
Small business owners, the lifeblood of the Irish economy, spend years grafting away and reinvesting all the money they have to make their businesses work. They shouldn’t be penalised for sacrificing their pension planning in the early years of their business.
They deserve more than the current rules allow, and it’s unfortunate that the Government missed another opportunity with the Finance Bill 2025 to get this right.
Glenn Gaughran is head of business development with the Independent Trustee Company
