Moneymakeover Looking for advice on going from DC pension to ARF/PRSA and what to do with a lump sum payment.

J

johndoe2

Registered User
Messages
16
Personal details
Your age: 61
Your spouse's age:57
Number and age of children: 3 all adults in full time work.

Income and expenditure​

Buy to Let Property value: €500,000
Buy to let Mortgage: No mortgages

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? N/A

Pension information

Value of pension fund: Ireland DC €250,000 UK SIP £320,000.
In drawdown UK DB pension £4000 per year


Buy to let properties
Value: €500,000
Rental income per year: Gross mix of sterling and euro €28,000

What specific question do you have or what issues are of concern to you?

I am taking a VR package from my employer which includes a lump sum. (Approx €100,000)

I am in my employers DC pension scheme and am looking for information on the setting up/conversion to ARF or PRSA of the existing funds when I leave the company.

I know I can go to any insurance company that offers ARF’s or PRSA’s and do not have to stay with the current DC plan company.

I assume if I was to move the funds to a different provider that they would pretty much all need to be sold and repurchased in similar or different funds that the ARF/PRSA provider has available, thus opening the risk of losing out from not being invested while the sells and buys take place?

Would this be the same case if I was to remain with the current DC plan provider (providing the same funds are available in their products) Have a meeting arranged with them next week?

Also, can I make lump sums or regular payments to an ARF/PRSA, only depending on what I have read it seems this is not possible yet on the current DC providers ARF T&C’s it quotes:

4.2 Entry charge on future single contributions If you choose to make an extra single contribution at any time, the percentage of contribution invested for the extra single contribution may be different from the percentage of contribution invested applying to your initial single contribution.

---Which to me gives the impression that I can make additional contributions post the initial transfer?


I’m looking for some direction on what I could/should do regarding existing DC pension and the redundancy lump sum.

I’m not looking to move any pensions from UK to Ireland, just looking for advice regarding setting up/switching into a different more self managed pension and whether I can then add any lump sums to it?


Thanks in advance
 
Ok so on the Pensions Authority site there is a PDF on PRSA's it states: "What is a PRSA? It is an investment account that you can use to save for your retirement. You can make regular and/or lump sum contributions to your PRSA and, assuming you pay income tax, you get income tax relief on the contributions you make, within certain limits set down by Revenue"
It also states: "PRSAs give you more choices at retirement; for example, you can continue making contributions after you retire, while also receiving a pension income."
Even though I may not be working I do pay tax on the income received from the rentals, does this not count?

Thanks
 
Transfers from one provder to another may take circa two weeks. That's reasonable. Fund price of provider/fund that you want to transfer to may go up, it may go down. If you brought a case to FSPO for that kind of 'delay', I'd say you wouldn't be successful. Would customers complain if it had worked to their benefit? Of course not.

Internal transfers are quicker (two days) but you might end up in a product with an AMC that's double what you could have bought elsewhere and exit penalties that restrict moving the fund for the next 5 years.

Only money that you can add to an ARF of Vested PRSA (post retirement products) is the residual value of other pre-retirement products.

4.2 mean that the exit penalty or contribution charge for future transfers to your ARF may be different.

If you're looking for a self-managed (directed) ARF then the market is limited. Or, do you just mean execution only, where you just pick a fund or funds? Latter would be lower cost option.

Can you mature a PRSA, take TFC and distribution from it AND also set up a new PRSA to get tax relief on earned income from another source?

Yes.



Gerard

www.execution-only.ie
 
Thanks Gerard, yeah I'm not currently looking to retire and the lump sum is a redundancy payment, just looking for direction in what I could do with that and maybe take advantage of being able to move my existing DC pension now I will have left that company at the same time?

I think I'm comfortable enough managing a pension myself, my UK SIPP was from a previous UK DB pension that I took a cash option in 2019, I have made no contributions to it and by buying and selling plus market growth is now worth 50% more than the initial payment.

Thanks
 
Thanks Clubman, makes sense, but I could still add some/all of it into a PRSA, regardless of the tax relief?
And hence maybe make a better return on it then leaving it in cash, prize bonds, state savings etc?
Or as I would be adding it to a PRSA would that mean when I eventually took a pension of the €100,000 lump sum payment I'd affectively only get 25% tax free?
Hence there may be better options for the lump sum ie Irish Life MAPS, or similar products from other insurance companies.
 
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johndoe2 said:
but I could still add some/all of it into a PRSA, regardless of the tax relief?
Click to expand...
I don't think that there's anything preventing you from contributing to a PRSA without tax relief but I'm not sure that this makes sense? And you seem to be comparing apples with oranges a bit - e.g. PRSA (with no tax relief on contributions) probably partially or fully invested in equities versus cash/deposits/state savings etc.?
 
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Thanks all, so where would/could be the best place for the lump sum which may return better growth than some fixed rate deposit account.
Maybe I should buy that yacht I always wanted and hope its value goes up.
 
johndoe2 said:
Thanks all, so where would/could be the best place for the lump sum which may return better growth than some fixed rate deposit account.
Click to expand...
Unit linked funds, ETFs, a diversified basket of directly held shares (the latter having the most preferential tax treatment)...
 
ClubMan said:
Unit linked funds, ETFs, a diversified basket of directly held shares (the latter having the most preferential tax treatment)...
Click to expand...
ClubMan said:
As ever, you should be wary of the tax tail wagging the investment dog! But, admittedly, all this LAET/DD/ETF messing is why I prefer direct equity investments in recent years because of the simpler and preferential CGT treatment:
Click to expand...

Curious as to how you're reconciling this knowing that there's a major ongoing review with (more) plans for change. No one knows what the tax regime will be like for any of these next year, never mind on what, the OPs death? And even at that, they haven't stated that terminal wealth is of paramount importance.

ClubMan said:
What sort of crystal ball do they (you) possess?
Click to expand...

Indeed.
 
GSheehy said:
Curious as to how you're reconciling this knowing that there's a major ongoing review with (more) plans for change.
Click to expand...
Because CGT treatment of direct shareholdings is preferential to LAET/DD taxation. And charges are lower too.
 
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johndoe2 said:
I am in my employers DC pension scheme and am looking for information on the setting up/conversion to ARF or PRSA of the existing funds when I leave the company.
Click to expand...
Is there a good reason to do this? You’ll usually get lower charges via an employer scheme of decent size, and I’m guessing here but an employer paying out 100k packages is probably decent-sized. Do you have any particular objections to how the trustees run the scheme or anything like that?

Just seems you might be taking on an administrative headache, and potentially higher fees, for no reason?
 
Thanks guys, investment time frame wise I'm looking at 5-10 years for the lump sum and looking to move out of employers DC scheme is more about me having more control over the fund choices and associated costs.
Up to now all costs including fund changes are covered by the employer, I assuming that Irish Life will be sending all of those my way once I'm no longer an employee?
Or do you think it will still be cheaper than going it alone with another provider/product?

Thanks
 
Hi, looking for some more info.

Update got the redundancy, have the lump sum in Raisin at the moment.

I signed on for job seekers (pay related) 3rd November so currently just over halfway through.

Not planning to go back to full time work or even part time but may do a bit of voluntary after the JS runs out.

What I do need to do though is keep my PRSI contributions being payed as up till when I was made redundant last year I had only 17.5 years contributions.

Now we do have a rental in Ireland that pays approx. €7000 net which I understand I may be able to use a unearned income and pay PRSI at 4.2 % but there is a minimum payment of €500 per year so I can I just make up the difference?

I’m also considering taking my DC pension as ARF which I believe may also entitle me to class S contributions which count towards pension.

Currently DC is with Irish Life. Would I be able to convert to ARF, take lump sum and leave the remainder invested in existing funds?

I’m not sure after the pay related JS end if I can apply for standard JS’s as I believe it is means tested and with the rental plus nearly €200,000 in cash and investments I don’t think I’d get any sort of payment, but could I still “sign on” and get my “stamp” paid?

Thanks in advance.
 
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