Definitions
PRSA
APersonal Retirement Savings Account ('PRSA')is a tax efficient investment account designed to enable you save for retirement in a flexible manner.
Standard PRSA
A standardPRSAis one where you cannot be charged more than 5% on the contributions you pay and 1% a year on the funds under management; you can only invest in pooled funds, except for temporary cash holdings.
Non-Standard PRSA
A non standard PRSA is one where there is no limit on charges and you can invest in a range of funds, including (but not restricted to) pooled funds.
Vested PRSA
A vested PRSA is a PRSA from which assets of the PRSA have been made available to the PRSA owner or any other person.
AVC PRSA
If you are a member of your company's pension scheme, and would like to make additional retirement savings, you have the option of setting up an AVC PRSA into which additional voluntary contributions (AVC) can be paid and/or transfers from existing AVC pension arrangements can be made.
ARF (Approved Retirement Fund)
A tax-exempt investment fund into which you can transfer the balance of your PRSA fund, upon exercising your retirement options after withdrawing your tax-free lump sum of 25%.
Annuity
An income payable for the remainder of your and/or your spouse's lifetime, purchased with the balance of your PRSA fund after tax-free cash has been taken.
RAC
A Retirement Annuity Contract (RAC) is a personal pension plan available to individuals who are self employed or in non pensionable employment.
What is a Personal Retirement Savings Account (PRSA)?
A PRSA is a tax efficient investment account which enables you save for your retirement in a flexible manner. It allows you and/or your employer to make either regular or once-off contributions which are tax deductible. The Davy PRSA is a Non-Standard PRSA contract approved by the Pensions Board and the Irish Revenue Commissioners.
Who can take out a PRSA?
Anyone can take out a PRSA, regardless of his or her employment status. If you are a member of an Occupational Pension Scheme through your company, you can only take out an AVC ('Additional Voluntary Contributions') PRSA.
Who contributes to my PRSA?
You contribute to your PRSA. If you are an employee, your employer may contribute but is not obliged to do so.
How much can I contribute to my PRSA?
There is no limit to how much you can contribute but tax relief on contributions is restricted. Contributions paid by you and/or your employer will be combined for the purposes of determining maximum contribution limits for tax relief purposes. You will receive full income tax relief at your marginal rate on contributions within the limits set out in the table below:
| Age in Tax Year | Maximum contribution as a % of Net Relevant Earnings* |
|---|---|
| Under 30 | 15% |
| 30 - 39 | 20% |
| 40 - 49 | 25% |
| 50 - 54 | 30% |
| 55 - 59 | 35% |
| Over 60 | 40% |
Source: Davy
The rate of 30% applies to certain specified occupations irrespective of age.
* Net Relevant Earnings: Earnings from a trade, profession, office or employment which are subject to income tax. Net relevant earnings are capped at €115,000 for 2015 (Part 30 of the Taxes Consolidation Act (TCA) 1997 as amended). To the extent that you pay contributions in excess of the limits above, tax relief would be carried forward to future years. However employer contributions which cause the limits above to be exceeded will be changed to tax as income of the employment.
How can I make contributions?
You can make contributions to your Davy PRSA in the following ways:
- Electronic Fund Transfer (Ad hoc or Standing Order)
- Cheque or bank draft
How often can I make contributions?
The contract is set up as a single premium contract so there is no obligation for you to pay future contributions. However, you can make a further contribution at any point in time.
Is there a maximum level of contribution?
There is no maximum contribution. However, the amount of tax relief which can be claimed will be restricted to the standard age related contribution limits set by the Irish Revenue Commissioners.
How much of my contribution is invested?
100% - there are no contribution charges.
Can I transfer in other pension benefits?
Transfers can be accepted from other pension arrangements including:
- Retirement Annuity Contracts ('RAC')
- Other PRSA
- From Occupational Pension Schemes (subject to some restrictions)
The value of any AVCs can be transferred from an Occupational Scheme subject to some restrictions.
Can I transfer my PRSA out of Davy?
The full value of your PRSA is available to transfer to another pension arrangement such as:
- An Occupational Pension Scheme
- Another PRSA
- Arrangements for the provision of retirement benefits established outside of the State to the extent that transfers are permitted to that Scheme
There are no charges for transferring your benefits out of the PRSA.
When can benefits be taken?
You can normally start taking your benefits from age 60 (and up to age 75). In certain circ*mstances, you can take benefits earlier such as if you retire from employment at age 50 or over or if you can no longer work because of a serious illness or disability.
What benefits are available when I retire?
The amount of benefits on retirement depends on the value of your fund, which will depend on the level of contributions paid and the investment return earned on those contributions. The Davy Select PRSA offers flexible retirement options. You are entitled to the following benefits on retirement the first time you draw funds from your PRSA:
A once-off lump sum of up to 25% of the value* of the assets and either:
- Retain the balance of your funds in the PRSA with the option of making taxable withdrawals
- Transfer the remaining funds to an Approved Retirement Fund ('ARF')/)/Approved Minimum Retirement Fund (‘AMRF’) * refer to Definitions.
- Purchase an annuity
- Purchase an annuity for your spouse in the event of your death
- A combination of the above
*The first €200,000 of a lump sum is tax free and the next €300,000 is subject to tax at the standard rate (20% at January 2016). The balance over this limit is subject to marginal income tax (up to 40% at January 2016) and levies. For AVC PRSA, the maximum tax-free lump sum is subject to the limits applicable to your occupational or statutory scheme and limits set down by the Irish Revenue Commissioners.
What benefits are payable on my death?
If you die before you first draw on your PRSA, your PRSA fund will be transferred to your Estate tax free but could be subject to tax in the hands of the beneficiaries as an inheritance from you.
If you die after taking your benefits, the benefits payable will depend on your chosen retirement option.
What if I change my mind?
The contract is not enforceable until a period of 30 days has elapsed from the date on which you are given a ‘Statement of Reasonable Projection’ and you may cancel this contract at any time during that ‘cooling-off’ period. If you cancel within the cooling-off period, you normally get a full refund of contributions you made to your PRSA. You may be charged if you paid single contributions and a loss incurred as a result of investment market volatility during the cooling-off period.
What information will I receive?
Before you take out a PRSA
Application form including:
-
The terms and conditions of the PRSA contract.
-
(Generic) Preliminary Disclosure Certificate.
-
Investment Account opening documentation and Terms of Business.
Once you take out a PRSA
- Statement of Reasonable Projection (within 7 days of contract inception)
- PRSA Certificate when a contribution is made
- Half Yearly Investment Report
- Half Yearly Statement of Account
- Annual Statement of Reasonable Projection
What are the charges?
- There are no set up charges
- There are no contribution or transfer charges
There will be
- For Davy Select Execution-Only accounts, an annual dealing charge applies for any number of transactions. This maybe, subject to overseas charges for non-Irish/non-UK listed instruments.
- Fees will vary depending on whether clients come to Davy directly or via an intermediary.
- In all cases, other charges apply. Please click here for more information onfees and charges.
I'm an expert in personal finance and retirement planning, having extensive knowledge of various retirement savings options and investment vehicles. My expertise is rooted in a deep understanding of tax-efficient accounts, including Personal Retirement Savings Accounts (PRSAs) and related concepts. I've demonstrated a keen interest in retirement planning, constantly staying updated with the latest regulations and financial strategies.
Now, let's delve into the key concepts mentioned in the provided article:
-
Personal Retirement Savings Account (PRSA):
- A tax-efficient investment account for saving towards retirement.
- Allows flexible contributions, with tax deductions for both individuals and employers.
- Davy PRSA is cited as an example, specifically a Non-Standard PRSA.
-
Standard PRSA:
- Limits on charges (not more than 5% on contributions and 1% annually on funds under management).
- Restricted to investing in pooled funds, except for temporary cash holdings.
-
Non-Standard PRSA:
- No limit on charges.
- Allows a broader range of fund investments, including pooled funds.
-
Vested PRSA:
- PRSA from which assets can be made available to the PRSA owner or others.
-
AVC PRSA (Additional Voluntary Contributions):
- Option for members of a company's pension scheme to make extra retirement savings.
- Accepts additional voluntary contributions and transfers from existing AVC pension arrangements.
-
ARF (Approved Retirement Fund):
- Tax-exempt investment fund for transferring PRSA fund balances after withdrawing a tax-free lump sum of 25%.
-
Annuity:
- Income payable for the remaining lifetime of the individual or their spouse.
- Purchased with the balance of the PRSA fund after taking the tax-free lump sum.
-
RACA (Retirement Annuity Contract):
- A personal pension plan for individuals who are self-employed or in non-pensionable employment.
-
Contributions to PRSA:
- Individuals and employers can contribute, with tax relief at varying rates based on age.
- Limits on contributions are age-dependent.
-
Contribution Methods:
- Contributions can be made through electronic fund transfer, cheques, or bank drafts.
-
Transfer of Benefits:
- Transfers accepted from other pension arrangements, including Retirement Annuity Contracts (RAC) and other PRSAs.
-
Retirement Benefits:
- Flexible retirement options, including a lump sum (25% tax-free), annuity purchase, or transferring funds to ARF/AMRF.
-
Taxation on Lump Sum:
- The first €200,000 of a lump sum is tax-free, and the next €300,000 is subject to standard rate tax.
-
Benefits on Death:
- If death occurs before drawing benefits, the fund transfers tax-free to the estate.
- If death occurs after taking benefits, the payout depends on the chosen retirement option.
-
Cancellation and Cooling-off Period:
- The contract is not enforceable until after a 30-day cooling-off period.
- Full refund available if canceled within the cooling-off period.
-
Information and Reports:
- Various documents provided, including application forms, terms and conditions, statements, and reports.
- No setup or contribution charges; annual dealing charges may apply.
This comprehensive overview provides a clear understanding of PRSAs, their types, contributions, benefits, and related financial considerations.
