What happens to PRSA when we die

[Killter]

Hi guys,

A quick question. Probably silly, but I can't find an answer online or in the forums.

Both my wife and I have PRSA standard penions through Zurich and New Ireland.

When we die, does the remainder of the pension (if there is any money left in the pot) go to the kids? Or does it go to Zurich.

Thanks in advance.

 

[Marc]

This is a really good question and most people struggle with all the terminology and options.

On death before retirement the amount paid out from a PRSA is a 100% return of fund with no tax if paid to a spouse or civil partner.

Retirement can be deferred to age 75 at the latest and a PRSA can be split to allow for a phased retirement generally between ages 50 and 75.

Once you retire a PRSA you can have a lump sum of 25% of the value which is tax free up to €200,000 and with the remainder either take a further taxable amount or either purchase an annuity or leave the money invested in either the PRSA (known as a vested PRSA) or an Approved retirement fund or ARF.

Which option is best requires some advice in the years leading up to retirement. In my 30 years advising people it never ceases to amaze me that many people haven’t taken any advice on their options even in the year prior to retirement. I’d say most people just rock up with a letter from an insurance company at age of 60 or 65 with a whole bunch of questions.

When you die what happens depends what option you hold at the time. An annuity can have a minimum guaranteed period of 10 years and or a spouses pension which can be as much as 100% of your pension payable for the remainder of their life. The more all singing and dancing the guarantees the lower the annual pension payable.

Once all the guarantees are used up the annuity ends. Most people assume that this means that the insurance company just pockets the cash. In practice the insurance company uses the money from people who die early to pay the pensions of people who live a long time. The net effect being that everyone gets a slightly better deal overall.

Whereas an ARF or vested PRSA can pass to the surviving spouse and any remaining fund on their death could pass onto the family with a 30% tax charge.

I’ve written a guide for people approaching retirement which sets out some of these considerations in more detail

Everlake Approaching Retirement Guide - Everlake

Investors should understand their retirement options at least five years prior to their proposed retirement date.

everlake.ie

 

[Freelance]

When one of you dies, the PRSA/s in the deceased’s name are paid as a lump sum to her/his estate for distribution in accordance with her/his will. Inheritance tax rules apply, so no tax on the portion that goes to your spouse, but the relevant inheritance tax rules apply rules apply to any other beneficiaries.

When the remaining spouse dies, the PRSA/s are again paid as a lump sum to her/his estate for distribution in accordance with her/his will. Inheritance tax rules apply.

If your wills do anything other than leave everything to the remaining spouse, it is probably a good idea to explicitly declare that your PRSA is to go in its entirety to the remaining spouse, to avoid others inheriting part of it and incurring an inheritance tax liability.

The rules are different in the case of a Vested PRSA which is treated as though it were an ARF.

 

[Killter]

Thank you very much guys.