Personal Retirement Savings Account (PRSA)
A Personal Retirement Savings Account (PRSA) is a long term pension savings product available to all individuals under the age of 75. It is designed, primarily, as a pre-retirement vehicle enabling individuals to save for retirement in a flexible manner. Tax relief is available on an individual’s personal contributions subject to age and income based limits. Employers must provide a payroll deduction facility for the remittance of employee contributions to a PRSA under the net pay system; employers can also contribute to a PRSA though they are not obliged to do so.
There are two types of PRSA; standard and non-standard. The difference between the two is the maximum charging structure and the type of assets in which you can invest.
A Vested PRSA is the term used to refer to a PRSA contract from which the holder has drawn down their lump sum and leaves the balance of their funds in the PRSA. If the holder does not have pension income for life of at least €12,700 per annum, the first €63,500 must be ‘ring-fenced’ to meet the specified income requirements. A Vested PRSA is subject to the same rules as an ARF with regard to deemed distributions. See A(M)RF section.
Investment growth generated by a PRSA and Vested PRSA is exempt from income tax and capital gains tax.
How does it work?
The NRFM Self-Invested PRSA is a non-standard PRSA contract. It offers the PRSA holder the opportunity to manage their retirement funds without the investment restrictions found with many traditional Life Company contracts. The NRFM Self-Invested PRSA is best suited to individuals that have a clear understanding of investment risk and prefer to retain control over the investments they choose for their pension.
On retirement, benefits can usually be taken from age 60. Your PRSA allows you to take a certain amount of your pension fund as a retirement lump sum. The maximum lump sum that you can take is 25% of your fund. Up to €200,000 of this is tax free (this is the total of all lump sums taken from all of your pension plans since December 2005) with the balance up to €500,000 taxed at 20%.
You can use the rest of your retirement fund to buy either; an annuity (an income for life), or to invest in an Approved Retirement Fund (ARF) – an ongoing investment.
There is a limit on the maximum fund that can be built up on retirement. This is currently €2,000,000. This figure includes all of your pension funds, including the capital value of any retirement benefits drawn down since 7 December 2005. Where the relevant limit is exceeded, the excess of your pension fund at retirement will be liable to a once off Income Tax charge at the higher rate of tax.
In the event of your untimely death, the value of your PRSA will be paid to your estate.
For more information please refer to our PRSA Brochure brochure or contact your Financial Advisor.