Choice between Occupational/PRSA or RAC pensions

[squaw]

For an employee (in a small business of 10 people) which is the better pension option - to be part of a Group Occ Pension or a Group PRSA. (If Group PRSA, is there any advantage or disadvantage from being part of a group one or having your own one)

If self-employed, which is better a PRSA or an RAC.

What are the advantages and disadvantages of each.

Many thanks

 

[Towger]

Employer contributions to PRSAs are subject to the Income Levy.

 

[boaber]

Employer contributions to PRSAs are subject to the Income Levy.

for now - I'd expect this to change in Budget 2011.

For Self-Employed, I'd suggest a PRSA as it is more flexible than a RAC in terms of transferring etc.

For an employee, if you choose the occupational scheme, then your options at retirement are limited to a multiple of final salary for your tax free lump sum and you must purchase an annuity (but again wait & see what happens in the budget - there could well be the "ARF for all" option introduced). Whereas with a PRSA, you can take up to 25% tax free cash and the balance can be put into an ARF (subject to certain criteria) - or left in the PRSA until age 75.

 

[TheFatMan]

Group Occ Pension Schemes usually offer life cover too

 

[Aisling]

My personal opinion for employees is an Occupational Pension Schemes (OPS) for a number of reasons
1. Most employee like to take the max tax free cash at retirement - OPS's provide up to 1.5 times final salary whereas PRSA's only offer 25% of the fund value
2. Investment options - OPS's can access more fund choices where PRSA's can only access certain types of funds (pooled funds)
3. Charges - While there is a cap on PRSA charges (5%) most do charge the full amount whereas charges can vary on OPS's but they generally are cheaper depending on the provider
4. Trusteeship - which is a very important point for the employer as this is normally the employers responsibility and due the current legislation this will put a lot of new burden's on them. Due to one provider out there offering this additional option for free this is now starting to become common place that the provider/life company will take it over so if you are going for an OPS make sure you find one of these providers.
5. As mention by Towger PRSA contribution are liable to income levy which means extra work for payroll as well as the employer paying extra "taxes".
6. Transfers - while I agree if everyone is in a PRSA they can be transferred easily OPS's can be transferred to PRSA if someone leaves employment and their fund value is less that €10,000 and the service is less than 15 years.

The one clear advantage that the PRSA has is the ability to transfer to an ARF while the OPS can't but the reality is that this will probably change in the next budget. Currenty the legislation says if the employees happen to pay AVC's to and OPS they can be transferred to an ARF.

In relation to the self employed I think the only real viable option is PRSA but the individual circumstances would need to be looked at here before making any decision. If the person you are referring to here is a PAYE director/employee of the company above this doesn't apply as they could always join the OPS as well as the employees. If this is the case please let us know so that we can reply with the relevant info.