PRSA ACCUMULATOR /PUBLIC SERVANT

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Paddy2014

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I have prsa 15 year contract (Zurich).Balanced pension invest. Ends June 2019.
I took this out as soon as tax efficient policies were allowed for public service.
I was really only interested in a lump sum type policy. This policy gives a pay-out subject
to your financial circumstances when termination date comes. I will get gratuity (1.5times salary-I think) and pension of about 30k a year. I am 51 and will probably continue to
work some time beyond June 2019. When June 2019 comes (please god!) I will be still be on higher tax rate & working ,(60/63 K) my wife does not work as she cannot and is on disability benefit.PRSA is worth approx.22k now and projected to be worth 30k approx. I get tax back at each year end after I submit claim manually on line ,to revenue and I spend it! Its not added to policy as a consequence. I really have no interest in an ARF, as I think the difference revenue max on work scheme with lump sum allows around 24/25k from policy ,balance to ARF. I am thinking of dropping payments 160 a month to maybe 60, just to cover the figure (24/25K) that I can get ,in june2019 , which is all I want. I have had the benefit of tax relief over the years
and as i don't want ARF , am I overlooking anything? that it would be advisable not to? I have use for the modest amount of money I will save , just looking for advice before I take any action.
thanks , sorry for long post!
 
Using the AVC PRSA to max your tax free lump sum is clearly the most tax effective (tax relief on contributions but taking value as a tax fee amount). So you need to work out what tax free amount you will get from your public service pension.
The Revenue Max is 150% of Final Salary ( base salary + overtime + bik etc), but you scheme may only base your lump sum on basic salary and your actual service. So you need to estimate the likely difference between what your scheme will pay and what the Revenue max will be. Using the AVC fund to bridge the gap is very tax effective.
But if the AVC fund exceeds the difference in lump sums, then any excess will have to be invested into an ARF or taken as a taxable income.
So it probably makes sense to try to get the AVC fund up to the desired value and not much beyond.
 
Conan said:
Using the AVC PRSA to max your tax free lump sum is clearly the most tax effective (tax relief on contributions but taking value as a tax fee amount). So you need to work out what tax free amount you will get from your public service pension.
The Revenue Max is 150% of Final Salary ( base salary + overtime + bik etc), but you scheme may only base your lump sum on basic salary and your actual service. So you need to estimate the likely difference between what your scheme will pay and what the Revenue max will be. Using the AVC fund to bridge the gap is very tax effective.
But if the AVC fund exceeds the difference in lump sums, then any excess will have to be invested into an ARF or taken as a taxable income.
So it probably makes sense to try to get the AVC fund up to the desired value and not much beyond.
Click to expand...

hi , I just have one last query re this! My PRSA ends in June 2019. Worth around 22k at mo. Putting 2k a year in at Mo. So will be about 6.500 to go at that rate (not including relief which I claim at end of year and keep) so will be worth , around 28.500 in June 2019. I can work till 2024. My question is....Q1.Do I have to be retired (on lower tax rate) before I can get the pay-out from this? (wife doesn't work). Q2 Secondly , using the public service calculation as follows: salary /65k x 3/80 of final salary x no of years service (will be 35 in 2019) equals 85.312. 150% ie. 65k x 1.5 - 97.500. Q3 Can I draw approx. 12.188 (The difference) tax free is that correct , with balance as ARF. Q4. What's the max I can get with this ARF a year (presuming I am sole earner/on low rate) Many Thanks. Paddy
 
Firstly, you can only access the PRSA AVC fund when you retire from your main scheme. The two are linked.
Secondly, yes you can use the AVC fund to bridge any gap in you retirement lump sum. So if you work till 2019 and retire early then you can take €12,188 from the AVC pot to augment you main scheme lump sum. But if you work till 2024 you may not have any shortfall, unless you have some income that is non pensionable.
Lastly, any excess remaining in the AVC fund can be invested into an ARF and you can draw down as much as you want each year (but taxable). You must draw down a minimum of 4% each year. You could drawdown the full balance in one go, but it might push you into a higher tax rate in that year.
Hope this helps.
 
Thanks. So the balance after the tax free lump sum which turns into an Arf has to have tax deducted monthly ( lower rate if not working) before I get it ... If I follow you correctly.
I had thought when the policy ended June 2019 benefits are available to me!
 
Just one other thing! If I just dropped the premium to a tenner a week it will run on till June 2019 ... Policy ends June 2019 ... It just " rest" till I actually retire I can then at that point I can access. Funds and ARF ... It won't be "eaten " away or anything like that !
 
Paddy2014 said:
...the balance after the tax free lump sum which turns into an Arf has to have tax deducted monthly ( lower rate if not working) before I get it ... If I follow you correctly.
Click to expand...
Where do you get that from? I was under the impression that the funds in the ARF remained intact and untaxed until drawn down?
 
Paddy,
When you retire from the Public Service the AVC fund matures also. After using some of the AVC fund to maximise your tax free lump sum you then must use any balance of the AVC fund as follow:
- draw it all down as income and pay tax
- use it to buy an annuity
- invest it into an ARF

If you invest into an ARF the capital grows tax free but any income drawn down is liable to tax at your rate of tax. You must draw down a minimum of 4% pa but you can draw down as much as you want.

If you stop paying into the AVC pot it remains invested until you actually retire from the public service. The AVC pot is regarded as just another "pension" fund to be available at the same time you retire from the public service.
Hope this is clear
 
Oh I see thanks a mill. The prsa end date is June 2019. I am just looking at policy now it says selected retirement date 27/6/2019. I selected a 15 year policy when it started on 1/10/2004. It's a default ARF.
It's my fault but I had thought I could access on the selected retirement date ... Regardless of whether I retired from public service or not. I much obliged for your help paddy
 
Conan said:
If you invest into an ARF the capital grows tax free but any income drawn down is liable to tax at your rate of tax. You must draw down a minimum of 4% pa but you can draw down as much as you want.r
Click to expand...

Thanks for clearing that up Conan.

Paddy - thanks for raising this. Interesting topic.
 
it really is slim. To be really honest its not a lot of money , I still really don't know should I bother to continue with it or not.
I was very surprised just to recently discover here that its linked to my public service pension. In that I cant touch until I actually
retire , which the financial advisor at the time I took it out never told me. I had intended to keep working possibly till 60 (52 now) and use the full amount in 2019 (or max allowable) for kids education....have to come up with another plan fairly lively now!
 
Because AVCs are treated as "pension" contributions you benefited from tax relief. Therefore the funds can only be used as part of your overall pension structure. AVCs are not a form of funding for child's education.
I see no major advantage in AVC funding more than will augment your tax free lump sum (at whatever age you expect to retire). And if you expect to work to 2024 and thus will not have any short service you may not be able to get back any of the AVC funds as part of the tax free lump sum. In those circumstances the only tax advantage would be if you get 40% relief on the contributions but will drop to a 20% as you draw down the benefit. Otherwise you could be paying 40% PAYE + USC thus making the whole investment to be tax negative.
 
hi Conan , that's exactly what I was thinking. In fact as you very rightly point out , if I go till 60 (probable) just doing the public service calculator thing I have, I don't think will actually get any tax free funds at all. I'm very disappointed , I went through this in great detail (or so I thought) with the PRSA advisor I dealt with 12 years or so ago. That was never mentioned , He told me that the contract was for 15 years to June 2019 and left it that...I only became aware here that it is linked to the date I retire on this site. I just presumed that it was a tax efficient way of saving a few bob.

I think I will just drop it to a minimum payment amount i can afford and take the bit of tax relief due , and what will be will be when I do decide to retire ......(I have absolutely no idea when I will!)
 
Sorry about this but I'm very happy now with all the advice I am fairly sure now what to do!
The very last thing now I promise !!!! Say I'm retired. 30 k pension. On low rate. My wife who is ill and on Disability (9.600 yearly) making my total income 40 k yearly. Looking at web today I think you go to higher rate for a couple at 42.800. Leaving lump sum aside. Re ARF: in order to stay at low rate and if figures above are approx. Correct... I can take 2800 a year from arf without hitting higher band ? Is this right.
(Is that 2800 subject to 20% deduction for tax before I actually get it) thanks again hope you can follow my train of thought !
 
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thks Conan. I think its near enough right !subject to correction here tho! you know you get 41% relief etc on contributions going in ... but have to pay 20% on the other side. How does that work...is it as I say 2800 to keep out of higher rate ....provider takes 20% for tax man giving you the balance? my 2800 becomes -560 .....becomes 2.240.thks
 
The ARF provider is required to deduct tax on any drawdown. If you give them your Cert of Credits they can deduct the correct tax (20%), but since you will probably need your Credits for your main income then the ARF provider will have to deduct tax at top rate. But you can subsequently reclaim any over deduction by making a tax return in the following year.
 
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