What types of PRSAs are available and what makes them different?
There are two types of PRSAs available and at Jameson Financial we are happy to advise on which one is more suitable for your needs.
A Standard PRSA carries a maximum charge of 5% on any regular premiums you pay and also a maximum yearly management fee of 1% of your fund. Most Standard PRSAs offer you a selection of up to 20 different investment options to choose from including a default investment strategy.
A Non-Standard PRSA offers you access to over 40 investment funds, which have varying degrees of risk. However, it is very important to note that a Non-Standard PRSA can have higher charges than a Standard PRSA. Again we are happy to advise on charges and on which plan is the most appropriate to suit your needs and circumstances.
With a PRSA you can pay contributions monthly, quarterly, half yearly or yearly by direct debit. In addition to your regular contributions, you can also make lump sum payments into your PRSA at any time.
How much do I need to save?
While you can start with as little as €25 per month, as a general rule of thumb you should be aiming for an income in retirement of between 50% and 66% of your final salary. However, everyone’s situation is different and it really depends on the type of lifestyle that you want for yourself in retirement, as well as on your own specific circumstances.
Jameson Financial will discuss your retirement needs with you and help you put a plan in place designed to achieve your financial goals. The following factors will be taken into account: based on:
- your current age
- when you would like to retire
- the kind of lifestyle you’d like
- what you can afford to save
How flexible is a PRSA?
A PRSA is very flexible with a variety of options to suit you. You can:
- increase or reduce your contribution amounts
- pay contributions monthly, quarterly, half yearly or yearly • stop contributions and restart at a later date
- add indexation to your plan which means that your contributions automatically increase by 5% each year to protect against the effect of inflation
- make lump sum payments into your Personal Retirement Plan at any time • change the fund(s) that your contributions are invested in.
As well as saving for your retirement, you can also avail of generous tax savings by contributing to a personal pension.
Income tax relief
If you are a higher rate taxpayer, for every €1 you save, you can benefit from up to 40% in tax relief. So, if you make an overall monthly contribution of €100, this means it will actually only cost you €60 after tax relief. For a standard rate taxpayer (20%), a €100.00 monthly contribution will only cost €80.00 with the government paying €20.00 in tax relief.
Unlike other savings plans, under current legislation your pension fund is allowed to grow without being subject to tax. You pay DIRT of 41% on any interest earned on bank accounts and exit tax of 41% on any gains made on most investments. You pay 0% tax on any growth within your retirement fund. This means that you can benefit from any growth and income that your fund may earn until you draw down your retirement benefits.
Tax-free cash on retirement
On reaching retirement, you may be able to take up to 25% of your retirement fund as a tax-free lump sum, subject to a limit of €200,000. Even where the retirement lump sum is greater than €200,000, the next €300,000 is only taxed at the standard rate of income tax. Therefore, the retirement lump sum is an attractive option at retirement.
Options at retirement
You can draw down benefits between ages 60 and 75 even if you are still working. It may be possible to drawdown benefits from your PRSA before age 60 if you are an employee, over age 50 and you have left the employment related to the PRSA policy you are looking to access.
OPTION 1 – Pension
You can buy a pension (also known as an annuity). This will provide you with a regular secure income, which will be paid for the rest of your life. Income from a pension is liable to income tax under the PAYE system. You may purchase your pension from any pension company. Therefore, you can maximise your retirement income by choosing the company that is offering the best pension rates when you retire. You can choose a pension that is payable for your lifetime only or one that continues to be paid to your spouse on your death. You can also choose a level pension or one that will increase every year.
OPTION 2 – Invest in an Approved Retirement Fund (ARF)
You can choose to invest your fund in an ARF. An ARF allows you to invest your retirement fund in a range of investments managed by approved providers As you retain ownership of your retirement fund with an ARF, you can make withdrawals as you wish subject to tax. If you die, your ARF becomes part of your estate and can be left to your spouse or children.