Personal Retirement Savings Plans Donegal
Why should I plan for my retirement?
Your retirement may seem like a long way off, but it is never too early to start planning. Smart planning for your retirement will ensure that when you do retire you can maintain the standard of living you have become used to.
While you may be entitled to a State Pension at retirement, the age at which you can pick up this pension has been increased: it will not be paid until age 68 for people who were born on or after the1st of January 1961. And even if you do get the full State Pension, at €230 per week currently (correct as of May 2022), it’s designed to cover the basic necessities of life only and will be a sharp drop from your annual salary.
There are a number of options available to you, but perhaps the most straightforward is the Personal Retirement Savings Account (PRSA), which was introduced by the Government to encourage people to save for their retirement
Smart planning for your retirement will ensure that you can maintain the standard of living you have become used to
What is a PRSA?
A PRSA is a private pension plan, separate from the State pension scheme and is available from a range of financial companies, including banks and insurance companies. Anyone can take out a PRSA, regardless of their employment status. It is essentially, a tax-efficient savings account set up by you to save for your retirement. A PRSA is extremely flexible: you (and your employer, if applicable) can gain tax relief on contributions to it; you can take it with you when you change jobs or employment and you can start, stop, increase or decrease your contributions at any stage.
There are two types of PRSAs available: a standard PRSA and a non-standard PRSA. The key difference between the standard and non-standard PRSA is: Standard PRSAs have a maximum fund management charge of 1% and a maximum contribution charge of 5% but have restrictions on the types of funds you can invest in; non-standard PRSAs don’t have limits on charges but may have a wider choice of funds including guaranteed funds which may be attractive to you.
Your advisor will be able to talk to you about which option would be most suitable for you.
How PRSAs work
You invest regular contributions or one-off contributions, or both. Most people choose regular contributions because it is easier and smooths out the cost. You can also increase or reduce your
contributions at any time. If you are an employee and are not in a pension plan at work, your employer could also contribute to your plan. And if your employment status changes or you move to a new employer, you may be able to take your PRSA with you.
How much should I invest in my PRSA?
You can start a PRSA by investing as little as €25 per month, however, there are a number of things you should consider before deciding on your monthly amount: what age you’d like to retire at, your current age, the length of time to your retirement, and your existing income.
General consensus suggests you should aim to retire on two thirds of your current income (this figure will include the State Pension). Because a PRSA is flexible you can keep your contributions at a consistent amount or you can decrease them or increase them, when appropriate, helping you to achieve your ideal retirement fund. You can also boost your PRSA with a lump sum payment at any stage. Your Advisor will talk to you about your expectations for retirement and your personal circumstances. In understanding what you hope to achieve they can offer you helpful advice in setting your investment amount
What are the tax advantages of a PRSA?
A PRSA is an extremely tax-efficient way for you to save for your retirement. Your monthly contribution to your PRSA qualifies for income tax relief at your marginal tax rate:
for example, if you pay tax at the 41% rate, for each €1 you contribute to your PRSA you can claim 41 cent back in tax relief.
To give you an idea how much this will save you annually: if you invest €1,000 in your PRSA per year, it will actually only cost you €590, after income tax relief.
There are limits to the income tax relief you can get from the Government. The maximum contributions which you can get income tax relief on in a year vary by your age in that year:
Age is year
Maximum tax-deductible contributions as a % of your earnings (max €115,000 earnings)
29 or younger
30 to 39
40 to 49
50 to 54
55 to 59
60 or more
In addition, the growth achieved by your PRSA is not subject to tax. This means that you gain from any investment growth and income your PRSA earns. Remember: Make sure you understand the tax benefits of a PRSA and that you apply to the Revenue Commissioners for these benefits. This is something your Advisor can help you with.
How do I decide where to invest my PRSA?
You may be relying on your PRSA to provide an important source of income in retirement, so it’s vital that you invest it wisely. There are many options available to you, from low and high-risk funds investing in particular types of assets to managed or mixed funds investing in a spread of assets and self-directed funds, where you choose the funds or assets in which you invest.
The PRSA you decide to invest in should offer you a diversified range of investment options that can meet your changing circumstances over time. Any choice you make should be based on the level of investment risk you are comfortable with and should take into account your financial circumstances and goals.
It is important to understand that the value of your PRSA can fall as well as rise, depending on which funds or assets you invest in.
Remember: If you make no decision on how to invest your PRSA it will be automatically invested in a default fund, which may or may not be suitable for your circumstances
The PRSA you decide to invest in should meet your changing circumstances over time
How can a Trusted Advisor help you with your PRSA investment choice?
Your Advisor will get to know you, your financial needs, attitudes to and capacity for investment risk and your ultimate goals. They will guide you through the basic elements of investing – risk and return, diversification and your own attitude to risk – and ensure you understand what’s at stake. With help from your trusted Advisor you can create a diversified range of investments within your PRSA. This means you can spread your money in a way that suits your needs and is in line with your risk and return expectations and how you expect to take your benefits at retirement.
How can I take benefits from my PRSA?
You don’t have to be retired to draw on your PRSA; from the age of 60 onwards you can access your PRSA. You can also access your PRSA on ill health retirement at any age and on early retirement from employment at any age from 50 onwards. The value of your PRSA is payable in full to your estate if you die before drawing on your PRSA benefits.
You will have a number of options when it comes to taking your retirement benefits from your PRSA. You can take a lump sum of up to 25% of your fund subject to the following limits.
|Lump sum amount (25% of fund)||Rate of tax|
|Up to €200,000||Tax free|
|Next €300,000||Standard rate (currently 20%)|
|€500,001 and over||Marginal rate (currently 40%) plus PRSI and USC|
With the balance of your PRSA you can choose to:
- Buy an annuity
- Transfer to an Approved Retirement Fund (ARF) to be held in your name
- Keep your fund in your PRSA; this type of PRSA is called a ‘vested PRSA’
- Take the balance as a taxable lump sum subject to putting €63,500 in an AMRF (or annuity) or having a guaranteed income of €12,700 or on reaching age 75
Remember: The ARF or vested PRSA can provide an income in retirement and any balance on death is payable to your estate. You are effectively required to withdraw at least 5% per year from your ARF or vested PRSA in retirement if you are aged 61 or older in that year. Your advisor will be able to tell you how you can take your PRSA benefits when the time comes.
This plan might suit you if:
This plan might not suit you if:
are looking for a long-term investment plan to provide for your retirement;
do not need a plan to provide for your retirement;
don’t need to use your fund before age 60 (until you retire);
need to use your fund before age 60 (before you retire);
are happy with the charges on this type of plan (which your advisor will take you through)
are not happy with the charges on this type of plan
are happy with the choice of funds available in this plan; or
are not happy with the choice of funds available on this plan;
would like to take advantage of the income tax relief available on pension contributions. You understand that when you retire, your pension benefits (after the retirement lump sum) are taxed as income.
are not currently paying income tax, and cannot take advantage of the income tax relief available on pension contributions.
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Personal Retirement Savings Plans Donegal FAQ’s
Am I eligible to take out this plan?
You can put in place a PRSA plan if:
- you are a resident (you live permanently) in Ireland, and you are between the ages of 18 and 75; and
- you are self-employed or in a job which is non-pensionable; or you are in employment and are a member of an occupational pension scheme and want to pay AVCs into a PRSA to boost your retirement benefits (see note below); or
- you are unemployed.
What are the charges?
There are two charges on this plan – an entry charge and a fund charge.
Your Advisor or provider should provide these before you set the plan up.
There is an entry charge on each contribution you pay, which can vary depending on whether you pay a one-off or a regular contribution.
You do not have to pay an entry charge on any transfers you make from approved pension plans into your PRSA.
Your RSA provider will take a fund charge from your fund value every month. This covers the cost of managing your investment funds. The fund charge is 1% every year.
Your PRSA provider will take any government levies due and pass them direct to the Revenue Commissioners. They will take these levies from your fund.
You should be provided with a preliminary disclosure certificate, which will outline the effect of the
charges on a typical PRSA.
What payment options do I have?
You can choose between making regular contributions, adding a one-off lump sum at any stage or paying contributions separately. Most people tend to pay regularly.
You can pay:
- regular contributions by direct debit (every month, every three months, every six months or every year);
- one-off contributions by cheque; and
- if you are an employee, by having your contributions taken from your salary.
If you are not in an occupational pension scheme at work, we will add any employer contributions to your personal contributions.
If you start your PRSA by paying one-off contributions, you will not be able to pay regular contributions into that PRSA.
If you are a member of an occupational pension scheme at work, it is not possible for your employer to contribute to your PRSA, as contributions can only be paid by you, as AVCs.
Can my employer take contributions from my salary?
employer’s bank account.
Your plan will be a monthly plan and your provider will collect contributions from your employer every month.
For example, if you are paid weekly and decide to make a regular contribution of €60, multiply €60 by 52 (weeks in a year) and divide it by 12 (months in a year). Your plan will then be set up for €260 every month and your plan provider will collect this from your employer’s bank account every month by direct debit.
So, at certain times, the amounts taken from your payroll may be held in your employer’s bank account for a short period before they are sent to the plan provider and invested in your plan. The provider invests contributions on the day they receive them.
Can I change the amount I pay, or even stop paying for a while?
However, the estimated value of your pension fund, which will be in the statement of reasonable projection section of your Welcome Pack, provided when you set the plan up, is based on the contribution level that you agreed to pay when you started the plan.
So, remember that reducing (or stopping) your contributions will reduce the value of your pension when you retire.
Can I transfer my existing pension funds into this PRSA?
You can transfer existing pension funds from Personal Pensions, PRSAs and occupational pension schemes into your PRSA. You can also transfer funds from pension arrangements overseas.
You will not have to pay an entry charge on that transfer contribution. You should think carefully and seek advice from an unbiased advisor before transferring funds from one plan to another.
Some restrictions apply to transfers from occupational pension schemes and overseas arrangements.
Do my contributions increase with inflation?
When you take out your plan, you can choose to have your contributions increase with inflation. If, like most people, you choose this option, your contributions will increase each year in line with the Consumer Price Index (a measurement of inflation), or by 5% if this is higher. If your contributions are taken from your salary, this option is not available.
Consumer Price Index (CPI) is a measure that examines the change of prices of particular consumer goods and services bought by households, such as transport, food and medical care.
Can I cancel my plan?
If you do this within 30 days of the date you receive your statement of reasonable projection, your provider will cancel the plan. They will refund any regular contributions you have made. They will return any one-off contributions or transfers after taking off any fall in value due to market conditions and in line with Revenue rules.
After the 30 days are over, you do not have the option to cancel your plan and get a refund if the plan is not suitable. You can stop contributing to your plan at any time, but you will not usually be able to take the benefits from your plan before you reach age 60.
Is there any limit on the size of my pension fund or my tax-free cash?
For tax purposes, the current maximum pension fund you can have is €2,000,000 from all sources. This is called the standard fund threshold (SFT). If you have pension funds over this amount, you will be taxed at the higher rate for income tax. This tax is taken from the pension fund before your retirement benefits are due to be paid. You should contact your Advisor for more details.
You will have to pay standard-rate income tax on any retirement lump sum between €200,000 and €500,000. Any amounts over €500,000 will be taxed as income at your marginal rate. The USC, PRSI (if it applies) and any other taxes or government levies due at the time will also be taken.
What is a personal fund threshold?
Do I have to pay tax on my pension?
Yes, your plan provider must pay benefits under the PRSA plan in line with current Irish tax law. They will collect any taxes or government levies and pass them directly to the Revenue Commissioners. Under current Irish tax law, when you retire, you can take some of the fund as a retirement lump sum. You will have a number of options as to how you can use the rest of your pension fund. The tax you pay will depend on which one you choose. If you choose to buy a pension for life (an Annuity), your income will be taxed as income in the normal way. If you invest in an ARF or continue to invest in your PRSA or as a vested PRSA, you will have to pay tax on any withdrawals that you make.
When is the earliest I can take my pension, and do I have to retire?
If you are self-employed, you can take your benefits from age 60. You do not have to retire to take your pension benefits. Some occupations allow you to take benefits earlier, such as pilots, fishermen, jockeys, professional rugby players, singers, check this with your Advisor.
If you are an employee and you are not a member of an occupational pension scheme, you can take your benefits at any time after your 50th birthday. If you do this between age 50 and 60, you must retire from your job.
From age 60 you can continue to work and take your benefits at the same time. If you are a member of an occupational pension scheme at work and have paid AVCs into a PRSA, your retirement age must be the same as the retirement age under your pension scheme at work.
Your plan provider will also pay benefits in line with your main scheme. You will need the permission of the trustees of your work scheme to take your benefits. This may mean that you will need to retire so you can take benefits before the scheme’s normal retirement age. If you need to retire because of ill health, it is possible to take benefits earlier than shown above.
If a transfer is paid into this plan and was granted to you under a pension adjustment order, the earliest retirement date will not be based on your date of birth, but will be based on your former husband’s, wife’s, registered civil partner or qualified cohabitant’s date of birth and their employment status at the time of transfer.
When is the latest I can take my pension?
You must take your pension before your 75th birthday. If you do not, your PRSA will automatically become a vested PRSA. If that happens you will have no access to the pension. No retirement lump sum will be available, no withdrawals are allowed from the plan, and you will not be able to transfer to an ARF or use the fund to buy a pension income for life. If you have not taken your pension before age 75, you will have 30 days to complete a Benefit Crystallisation Event (BCE) Certificate or as required, the plan provider will deduct income tax at the higher rate (currently 40%) from your pension fund and pay it to the Revenue Commissioners.
Important Note: If your PRSA becomes a vested PRSA at age 75, you will have no access to your pension benefits.
What happens if I stop working?
If you stop working but do not plan to begin taking benefits, you can either:
- stop contributing to the plan (perhaps until you start working again); or
- continue to contribute to the plan. If you continue to contribute, income tax relief on the contributions may have to be carried forward to when you have earnings in the future.
What happens if I have to retire early because of ill health?
If you have to retire early because of ill health, you can take your pension benefits immediately. However, your pension may be low because your contributions are stopping at an earlier age and the pension will have to last longer as you will be retiring earlier.
If you retire early because of ill health, you must provide medical evidence to support this. The definition of ill health in Section 787k of the Taxes Consolidation Act 1997 is you are “permanently incapable through infirmity of mind or body of carrying out his or her own occupation or any occupation of a similar nature for which he or she is trained or fitted”
What happens if I die before starting to take my benefits?
What happens if I die after starting to take my benefits or after age 75?
At age 75 your PRSA will automatically become a vested PRSA. If you have taken your retirement lump sum and decide to continue investing through your PRSA, your plan will become a vested PRSA. Your PRSA will also become a vested PRSA at age 75 whether you have taken your retirement lump sum or not.
The plan provider will pay the value of your vested PRSA to your estate when you die.
Your dependants may have to pay tax depending on who inherits the funds. If you leave the funds to your husband, wife or registered civil partner, they can transfer the funds to an ARF in their own name.
In all other cases, your plan provider will pass the funds to your estate. If your estate has to pay income tax, they must take this off before paying the proceeds to your estate. Generally, the amount is treated as income for the year of your death.
There are a number of exceptions to this rule.
Income tax is not due if:
- the funds are transferred to an ARF in your husband’s, wife’s or registered civil partner’s name (however, PAYE is due on any future withdrawals); or
- the funds are transferred for the benefit of your children who are under 21 on the day you die.
Income tax will be due at a rate of 30% if the value of your vested PRSA is transferred for the benefit of any of your children who are over 21 on the day you die.
As well as income tax, if your vested PRSA is not paid to your husband, wife or registered civil partner, or to any of your children over age 21, there may also be capital acquisitions tax (CAT) due on the value of your plan. The beneficiaries are responsible for paying this tax. Irish tax law changes over time and you should get independent tax advice on this.
How do I get Income tax relief on my PRSA contributions?
If we take your personal contributions from your bank account, you can apply to your inspector of taxes to have your tax credits adjusted to reflect your pension contributions. You can do this your Revenue My Account.
If your contributions are paid from your salary, you will receive immediate income tax relief. Any employer contributions will receive corporation tax relief in the year the contribution was made.
If you are self-employed, you must include your pension contribution in your self-assessment tax returns to get income tax relief.
Income tax relief is not currently available on net relevant earnings which are more than €115,000 including contributions to other approved pension arrangements.
For certain occupations you may get tax relief of 30% of your earnings, no matter how old you are. In general, these tend to be professional sportspeople who earn their income from that occupation.
What happens if I leave my employment?
If you are self-employed while paying into a PRSA and then move into a job which has a pension scheme, your contributions into your PRSA either should end or become additional voluntary contributions linked to your main scheme.
The way you make your contributions could change (for example, from direct debit to payroll deductions) and you should let your advisor and or plan provider know.
If you are employed in a job which does not have a pension scheme and then become self-employed, you can continue your contributions as normal.
If you move into a job which has a pension scheme, your contributions into your PRSA either should end or become additional voluntary contributions linked to your main scheme.
The way you make your contributions could change (for example, from direct debit to payroll deductions) and you should let your advisor and or plan provider know.
If you are a member of an occupational pension scheme and are paying AVCs into a PRSA but leave that job, your contributions can continue but they will become ‘ordinary’ contributions unless you join another job with a pension scheme.
This may mean changing how your contributions are made from a payroll deduction to direct debit from your personal account. If you move from a job with an occupational pension scheme, to another job with an occupational pension scheme, the payroll system will change from the old employer to a new employer.
Your plan provider can only do this if you let them know immediately. It is important to let your plan provider know about any change of your employment so they can pay out the correct benefit to you when you retire.
So, changing your job does not mean that you have to stop paying into your PRSA. It just means that you may have to change the way you pay your contributions, and you should let your advisor and or your plan provider know as soon as possible. There may be restrictions on paying AVCs into some occupational pension schemes.
Can I take money out of my PRSA?
In most cases you will only be able to access your PRSA between ages 60 and 75, or due to early retirement. If you are a member of an occupational pension scheme at work and are paying AVCs into your PRSA, you have to take benefits at the same time.
It may be possible to cash in the value of your plan if it is €650 or less and you have not paid contributions into your PRSA in the two years before you ask to cash it in.
If the value of your fund is €650 or less and you do not pay any more contributions into it for two years, the plan provider has the right to ask that you transfer your fund to another approved pension scheme or start to pay contributions again. They will write and tell you about this. If you don’t response to the plan provider within three months of this request, they could decide to automatically refund the value to you.
Can I move my money to another provider?
Yes, you can transfer your plan to another approved PRSA provider at any stage. You can also transfer your assets to an approved occupational pension scheme if you are a member of that scheme and the trustees are willing to allow this.
You may also be able to make a transfer to a 49 approved pension arrangement outside the state. Some restrictions apply to transfers to pension arrangements overseas.
Your plan provider should not charge you for transferring out of the PRSA unless you are in a fund which restricts you from leaving before an agreed date. They may also set a delay period before a transfer can take place.
You will have to pay income tax, Universal Social Charge and PRSI (if it applies) on transfers to an overseas pension scheme. You should check with your advisor if this applies to your chosen fund.
Family law and pensions
If you are involved in a judicial separation or divorce or dissolution of a civil partnership or ending of a relationship with a qualified cohabitant, a pension adjustment order may be granted by the court. There is no option to set up an independent benefit within this plan.
A pension adjustment order issued by the court will override the terms and conditions of your PRSA plan. This will direct your plan provider to pay all or part of the benefits under this plan when you retire or die, to any person named in the pension adjustment order.
If a pension adjustment order has been granted on your plan, you must let your advisor and or plan provider know. You can get more information on how a pension adjustment order works from your solicitor or from the Pensions Authority at the following address
The Pensions Authority, Verschoyle House, 28-30 Lower Mount Street, Dublin 2.
Phone: 01 613 1900 Email: firstname.lastname@example.org Web: https://www.pensionsauthority.ie/en/