Personal Retirement Savings Account (PRSA)

What is a PRSA?

A Personal Retirement Savings Plan is a flexible pension structure that allows you to save for your retirement throughout your working life. The PRSA is owned personally by the individual who established even if this is established through your employer.

 

Who can contribute into a PRSA?

Individuals in Employment:

1. • Employees who do not have access to an employer-sponsored pension scheme or who wish to supplement their existing pension benefits can contribute to a PRSA. This includes full-time, part-time, and temporary employees.

 

Self-Employed Individuals:

1. • Self-employed individuals, sole traders, freelancers, and business owners can contribute to a PRSA as a way to save for retirement and benefit from tax relief on their contributions.

 

Employers on Behalf of Employees:

1. • Employers can contribute to PRSAs on behalf of their employees as part of an employee benefit package. This allows employers to offer retirement savings options to their workforce, especially if they do not have a traditional occupational pension scheme in place.

 

Individuals Without Access to Occupational Pension Schemes:

• • Individuals who do not have access to an occupational pension scheme provided by their employer, such as employees of small businesses or certain industries, can set up and contribute to a PRSA to save for retirement.

 

There are two types of PRSA's that one can establish:

1. A Standard PRSA - this has a limited range of investment options with maximum charging; and
2. A Non-Standard PRSA - this has a wide range of investment options without maximum charging.

 

 

Who is eligible for a PRSA?

Anybody can establish a PRSA regardless if they are working or not.

If you are a member of an Occupational Pension Scheme through your company, you can only pay Additional Voluntary Contributions (AVCs) to the PRSA.

Employers who do not operate an Occupational Pension Scheme must offer employees access to at least one Standard PRSA where contributions can be made by payroll deduction.

 

 

What are the tax benefits of a PRSA?

Tax Relief on Contributions:

1. • One of the main tax benefits of a PRSA is that contributions made to the PRSA are eligible for tax relief at the individual's marginal income tax rate, subject to certain limits. This means that the government effectively tops up your contributions by providing tax relief.
   • For example, if you are a standard rate taxpayer in Ireland (20% tax rate), every €100 contributed to your PRSA effectively costs you €80 after tax relief. If you are a higher rate taxpayer (40% tax rate), every €100 contributed effectively costs you €60 after tax relief.

 

Tax-Free Growth:

1. • The investments held within a PRSA grow tax-free. This means that any dividends, interest, or capital gains earned within the PRSA are not subject to income tax or capital gains tax while they remain within the pension fund. This tax deferral can significantly enhance the growth of your retirement savings over time.

 

Tax-Free Lump Sum at Retirement:

1. • At retirement age (currently from age 60 in Ireland), you can typically take a tax-free lump sum from your PRSA fund, up to certain limits prescribed by law. This lump sum is known as the Retirement Lump Sum and is usually subject to a lifetime limit.

 

Retirement Income Taxation:

1. • When you start receiving retirement income from your PRSA, such as through an annuity or drawdown arrangement, the income is subject to income tax at your applicable tax rate at that time. However, during retirement, individuals may be in a lower tax bracket compared to their working years, potentially resulting in overall tax savings.

 

Death Benefits:

• • In the event of your death, the PRSA fund can be passed on to your beneficiaries. Depending on the circumstances, these benefits may be subject to inheritance tax rules, but generally, they can be passed on tax-efficiently to your heirs.

 

Are there funding limits with a PRSA?

Employer contributions

Employer contributions to a PRSA are now capped at 100% of the employee's or director's annual salary. For example, if an individual earns €50,000 per year, the employer can contribute up to €50,000 within that year. Contributions beyond this limit are subject to additional taxation.

Any employer contributions exceeding 100% of the employee’s salary will be considered a Benefit in Kind (BIK), meaning the excess amount is subject to income tax and other deductions for the employee.

 

Personal / Employee contributions

Personal contributions into a PRSA will be limited to the revenue rules which relate to age and percentage of salary.

 

Currently, only income tax relief can be claimed on personal / employee contributions to a PRSA. No relief of PRSI or USC is given so employer contributions make more sense if possible.

 

 

What are the other benefits of the PRSA?

In addition to the tax benefits outlined previously, Personal Retirement Savings Accounts (PRSAs) offer several other advantages that make them an attractive option for retirement savings. These benefits include:

Flexibility:

1. • PRSAs are designed to be flexible, allowing individuals to contribute varying amounts based on their financial circumstances. Contributions can be made regularly or as lump sums, providing flexibility in how you save for retirement.

 

Portability:

1. • PRSAs are portable, meaning you can continue contributing to the same PRSA even if you change jobs or employment status. This portability ensures that your retirement savings remain consolidated in one account, making it easier to manage and track your pension fund over time.

 

Wide Range of Investment Options:

1. • PRSAs typically offer a diverse range of investment options, allowing you to choose how your pension savings are invested based on your risk tolerance and investment preferences. Common investment options include equity funds, bond funds, property funds, and cash funds.

 

Professional Fund Management:

1. • PRSAs are managed by professional pension providers or investment firms, ensuring that your retirement savings are overseen by experienced investment professionals who aim to optimize returns while managing risks.

 

Transparency and Regulation:

1. • PRSAs are subject to regulatory oversight, ensuring transparency and consumer protection. Regulatory requirements govern areas such as charges, fees, investment options, and reporting standards, providing peace of mind to pension savers.

 

Simplicity:

1. • PRSAs are relatively easy to set up and manage compared to some other pension arrangements. They are accessible to a wide range of individuals, including employees without access to employer pension schemes and self-employed individuals.

 

Retirement Options:

1. • At retirement age (usually from age 60 onwards in Ireland), PRSA holders have various options to access their pension savings, including purchasing an annuity that provides a regular income for life or opting for a drawdown arrangement where they can withdraw income periodically while keeping the remaining fund invested.

 

Income Replacement in Retirement:

1. • By contributing to a PRSA during your working years, you can build a substantial pension fund that serves as a source of income in retirement, supplementing any state pension benefits you may be entitled to receive.

 

Flexible Retirement Planning:

• • PRSAs enable individuals to take control of their retirement planning and tailor their pension contributions and investment strategy to align with their retirement goals and lifestyle aspirations. PRSA's can be split into small accounts if it makes sense for cash flow purposes.

 

 

When can you access a PRSA?

An individual can access the benefits from a PRSA at age 60, however, this can be reduced to age 50 when they are a PAYE employee and they have left service.

A PRSA established in relation to Self-employed income will need to wait until age 60.

When you do access a PRSA, you are able to take 25% of the value as a lump sum, with the balance of the PRSA then invested in an Approved Retirement Fund (ARF) or used to purchase an annuity.

 

What are the charges associated with a PRSA?

Personal Retirement Savings Accounts (PRSAs) typically involve various charges, which can impact the overall growth and performance of your pension fund. It's important to be aware of these charges when considering a PRSA. The specific charges associated with a PRSA may vary depending on the provider and the investment options chosen, but common types of charges include:

• Initial establishment or contribution charges -The contribution charge can be a percentage of the contribution amount or a fixed fee.
• Fund Management Fees - These charges cover the costs of managing and operating the investment fund and are usually expressed as an annual percentage of the fund's value.
• Ongoing Advisor fees - This charge is in relation to the ongoing management and reviewing of the PRSA by your financial advisor.
• Exit or Surrender charges - Certain PRSA contracts may have exit or surrender charges if you decide to withdraw funds or transfer your PRSA to another provider before a specified period.

Should I start a PRSA if I am already a member of a Company Scheme?

This will depend on the current scheme and whether it can meet your requirements. Review the details of your existing PRSA, including the fund performance, investment options, charges, fees, and any applicable benefits or features.

Some company schemes also have contribution limits so you may need to set up a standalone PRSA which can work alongside the main scheme.

 

Want to find out more?

Contact us for advice on whether a PRSA is the right option for you or to set up a meeting with one of our advisors where we can look at your overall retirement structure and ensure that all your pension funding is working for you to reach your desired retirement.

 

The Central Bank does not regulate Tax Advice, Qualified Recognised Overseas Pension Schemes or Estate Planning.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.