Personal Retirement Savings Accounts
A Personal Retirement Savings Account (PRSA) is a long-term personal pension plan, designed to let you save for retirement in a flexible way. Most people can get a PRSA but they can be especially helpful for people with no pension provision. PRSAs were first introduced in Ireland under the Pensions (Amendment) Act 2002. Your PRSA is a contract between you and a PRSA provider in the form of an investment account. You can change employment and continue to use the same PRSA and you can switch from one PRSA to another at any time, free of charge.
You can get tax relief (based on your age) for the contributions you pay into your PRSA. Since 2003 employers that do not have an occupational pension scheme for their employees must provide access to at least one Standard PRSA. Employees who are not entitled to join a pension scheme within 6 months of service must be given access to a PRSA by their employer. Read more about employers' obligations and PRSAs here (pdf)
There are two types of PRSA:
- Standard PRSA
- Non-Standard PRSA
The main difference between the two types of PRSA is that the maximum charges under a Standard PRSA cannot exceed 5% of contributions paid and 1% per annum of the account’s assets. There are some restrictions on the kind of assets a Standard PRSA can invest in. A Non-Standard PRSA does not have maximum limits on charges and has no restrictions on investments. You can read more about the differences between Standard and Non-Standard PRSAs in a Consumer's Guide to PRSAs (pdf) produced by the Pensions Authority.
Standard PRSAs are likely to meet the requirements of most people. The level of charges on your account is important to consider, as the charges imposed reduce the fund you can build up. On your retirement, the size of your fund will depend on your contributions and the investment performance less any charges. It is not possible to predict investment performance.
Charges on Non-Standard PRSAs are not capped and in most cases, are higher than Standard PRSAs. If you are considering a Non-Standard PRSA, ask for a full explanation of the differences between this product and the Standard product. You should beware of promises of better returns on Non-Standard PRSA products as predicting investment performance is extremely difficult.
Do you need a PRSA?
If you are considering whether to invest in a PRSA, you should ask yourself the following questions:
- Is there an existing pension scheme available to me in my job? If not, you should consider making provision for your retirement and a PRSA may be the option for you. If you already have a good pension arrangement, you may not need to make any additional provision, or you may be able to "top up" your benefits by making Additional Voluntary Contributions (AVCs). If there is no AVC facility, your employer must provide access to a PRSA.
- Should I start a PRSA if I already have a personal pension plan? You should seek professional advice based on your circumstances. Contact a broker or your pension provider for more information.
- Do I need a PRSA if I already have a defined benefit scheme? Defined benefit pension schemes promise a pension related to your salary (e.g. two-thirds of final salary on retirement). You may not need to make any further pension provisions if you have this type of pension. Transferring from a defined benefit scheme into a PRSA involves a risk. Assess your financial position and weigh up the advantages/disadvantages.
- Do I need a PRSA if I have a defined contribution scheme? You are already carrying the investment risk - your pension will depend on the contributions you make, together with the investment performance of your fund, less any charges. If your employer is making a contribution to your existing scheme, you should find out whether this will continue if you transfer to a PRSA.
Investment of your money
Standard PRSAs invest only in pooled funds where the risk is spread across a large number and variety of investments. Non-Standard PRSAs can offer wider investment choices. However, you need to be sure that you understand the investment choices and the reasons why you should opt for them. If you do not understand how your pension will be invested, then you should consider if this product is best for you.
You should also be sure that you can afford the monthly payment suggested and that this is the most effective payment for tax relief purposes - read more about tax relief and PRSAs below.
Approval of PRSA products
The Pensions Authority and the Revenue Commissioners are jointly responsible for approving PRSA products in Ireland. The Pensions Authority supervises the activities of PRSA providers in relation to their approved products and monitors compliance with the legislation about PRSAs. The Pensions Authority also maintains a register of PRSA providers and their products.
Ombudsman for Pensions
The Financial Services and Pensions Ombudsman has the power to investigate and determine complaints, concerning disputes of fact or law and errors in relation to occupational pension schemes and PRSAs. The Ombudsman has the power to give any directions necessary to resolve the complaint or dispute and can give financial compensation. This financial compensation cannot exceed the actual loss of benefit under the complainant’s occupational pension scheme or PRSA. The Ombudsman does not have the power to award legal costs. All decisions made by the Ombudsman are binding between the parties but can be appealed to the High Court.
Tax relief and PRSAs
If you pay a contribution into a PRSA, you will benefit from tax relief at your marginal income tax rate. Since 1 January 2011 you have to pay social insurance (PRSI) contributions and the Universal Social Charge on your PRSA contribution. If your contribution to your PRSA is deducted from your salary by your employer, net pay arrangements will apply, that is, your tax relief is given at the time you pay the contribution.
The maximum annual tax deductible for a PRSA is based on a percentage of your earnings. The allowable percentage rises with age. (So for example, someone over 40 will get a higher rate of tax relief than someone aged under 30).
Tax relief is allowed against your relevant earnings (that is, earnings from employment, from a profession or from a trade). If you have earnings as a proprietary directory or employee of an investment company, these are discounted. "Net relevant earnings" are relevant earnings less losses, capital allowances and certain payments that reduce a person's income for tax purposes such as tax effective covenants.
If you are a member of an occupational pension scheme or of a statutory pension scheme, you may pay to an Additional Voluntary Contributions PRSA.
PRSA providers cannot impose a minimum contribution greater than:
- €300 per annum
- €10 per electric transaction or
- €50 per transaction for other methods of payment.
Contributions received by PRSA providers must be held in a custodian account.
Maximum allowable contributions for tax relief purposes are:
|Age||Percentage (%) of earnings*|
|60 and over||40%|
* For employees, "earnings" means gross pay for tax purposes. In the case of self-employed people, "earnings" is defined as "net relevant earnings" (see above). Since 2011 the annual earnings limit that may be taken into account is €115,000.
This means for example, an employee aged 35 who earns €50,000 can get tax relief on annual pension contributions up to €10,000.
Contributions made by an employer to a PRSA on behalf of an employee, are treated as a "benefit in kind" of the employee. The employer’s contributions are treated the same as the employee’s for tax relief purposes. For example, an employee aged 29 contributes 5% of their earnings to a PRSA and the employer contributes a further 10%, the employee is treated as making a total contribution of 15%. The employee is charged on the employer's contribution as a benefit in kind and must include this on their return of income to the Revenue Commissioners. This tax treatment makes no practical difference unless the total contribution limits shown are exceeded.
From April 2006 contributions to PRSAs have been disregarded from assessment in means-tested social welfare schemes except Supplementary Welfare Schemes.
How to apply
If your employer does not operate an occupational pension scheme or if certain restrictions apply to the occupational pension scheme, your employer is required by law to provide access to at least one Standard PRSA. This rule applies to all employers, irrespective of the number of employees and the status of those employees (i.e., whether they are full-time, fixed-term, part-time, contract, etc.).
Contact the HR manager or Payroll Section at your employment to find out more about the Standard PRSA(s) they have provided.
You can also read more about pensions and retirement here.