Non-standard PRSA vs Personal Pension (& list of general pension questions)

[FireDuck]

Here's my situation:

• I usually work as a contractor (so I switch between jobs every 1 to 5 years).
• I have to sort out my own pension.
• Every so often I become a full time employee and hence get an occupational pension.
• Any time I leave the full time position I would like to roll the money from the occupational pension into my personal one.
• I haven't set up a personal pension yet.
• I would prefer to choose the investments myself.
  • I'll be buying just two funds: Total Equity UCIT ETF & Total Bond UCIT ETF.
• I'll be maxing out my contributions each month.

I'm currently leaning towards opening a Non-Standard/Self-Directed/Execution-Only PRSA with Davy Select.

Here are my questions:

1. Is a Non-Standard PRSA the way to go?
   1. If so who have the best rates (I'm looking mainly at annual mgmt. charge and loading/contribution charge currently).
   2. Has anyone done up a spreadsheet or list of rates compared between these companies?
2. Can you open an execution only personal pension?
3. Are personal pensions better than Non-Standard PRSA's?
4. Can you roll occupational pensions into Non-Standard PRSA's?
5. Can you have both a Non-Standard PRSA & a personal pension at the same time?
6. Are investments in a pension account exit tax free and exempt from deemed disposal (I assume yes).
7. Is it best to open a pension directly with the company or through a broker (as you may get a discount)?
8. When you choose a pension provider be it personal pension or PRSA can you switch to another provider easily enough?
9. Can you switch money between a personal pension and a PRSA?
10. If I open a pension this month (December), can I only contribute 15% of my income for this month, or can I backtrack previous months missed contributions?
    Or if you miss a month is that month now completely closed off for contributions?

I know it's a lot of questions but I've been researching this for a while now, looking through this forum & elsewhere, and I'm struggling to make a final decision. I thought it'd be better to do one big post rather than a bunch of smaller ones.

If there is anything that you think I may have missed please point it out.

Looking forward to hearing from this very knowledgable community.

FireDuck

 

[Oisin19]

why don't you just go to an advisor and let them do all the work for you?

 

[FireDuck]

why don't you just go to an advisor and let them do all the work for you?

If everyone did that then this website may be redundant

I actually have a consultation booked for this week coming, but I would prefer to have as much information together beforehand as possible so that I can make the most use out of the time with the advisor.

I'll be sure to update this post with the answers I get from the advisor.

 

[Smoneen]

1: A PRSA might be the more appropriate route for you as you might be combining transfers from occupational arrangements in the future. Although there are additional rules around this and it’s not always possible to do.
It is possible to arrange for your PRSA to be linked to your employer so for the periods while you are employed the ER could contribute to the PRSA as opposed to contributions being collected from your on DDM. The life providers can all do this, not sure if Davy have this flexibility.

2: I haven’t seen an execution only PPP done but in theory it’s possible. Any broker should be able to set up an execution only PPP for you as long as you know exactly what you’re looking for.

3: Broadly, in my opinion, personal pensions are better than PRSAs but for the circumstances that you have presented I think the PRSA is more appropriate for this situation as long as you use it to the best of its flexibility.

4: You can transfer OPS benefits into a PRSA subject to certain rules: less than 10K, less than 15 years service etc. As mentioned above a PRSA can collect contributions directly from an employer so that might be something to consider.

5: PP & PRSA at same time: yes

6:Yes pension investments grow tax free

7: I could write an essay on this. It comes down to how much you know in my opinion. Pension regulation, options, planning etc is difficult and likely to become more so. If it is not your main profession and you end up giving up time to dedicate to monitoring your pension personally you need to think about that.

8: yes it’s easy enough to switch between companies.It generally takes 4 weeks (on average) owing to turn around times in the market.There are a few steps required, easy when you know what you are doing. Might not be as simple on an execution only basis.

9: You can transfer a PPP to a PRSA but you can’t transfer a PRSA to a PPP.

10: Tax relief is annually. You have until 31st October 2020 to claim tax relief for 2019. If you start today & register contributions for December revenue will apportion tax credits accordingly on My Account. Given your changing employments it’s important that you ensure all relief is fully claimed before you change jobs - just a technicality, you can’t back claim relief for contributions made while self employed if you are now in PAYE employment.

These things are all nice to know but really this is a job for an advisor. Well done on making inroads on building your journey but it’s not just about getting the product right.
Begin with the end in mind!

 

[FireDuck]

1: A PRSA might be the more appropriate route for you as you might be combining transfers from occupational arrangements in the future. Although there are additional rules around this and it’s not always possible to do.
It is possible to arrange for your PRSA to be linked to your employer so for the periods while you are employed the ER could contribute to the PRSA as opposed to contributions being collected from your on DDM. The life providers can all do this, not sure if Davy have this flexibility.

2: I haven’t seen an execution only PPP done but in theory it’s possible. Any broker should be able to set up an execution only PPP for you as long as you know exactly what you’re looking for.

3: Broadly, in my opinion, personal pensions are better than PRSAs but for the circumstances that you have presented I think the PRSA is more appropriate for this situation as long as you use it to the best of its flexibility.

4: You can transfer OPS benefits into a PRSA subject to certain rules: less than 10K, less than 15 years service etc. As mentioned above a PRSA can collect contributions directly from an employer so that might be something to consider.

5: PP & PRSA at same time: yes

6:Yes pension investments grow tax free

7: I could write an essay on this. It comes down to how much you know in my opinion. Pension regulation, options, planning etc is difficult and likely to become more so. If it is not your main profession and you end up giving up time to dedicate to monitoring your pension personally you need to think about that.

8: yes it’s easy enough to switch between companies.It generally takes 4 weeks (on average) owing to turn around times in the market.There are a few steps required, easy when you know what you are doing. Might not be as simple on an execution only basis.

9: You can transfer a PPP to a PRSA but you can’t transfer a PRSA to a PPP.

10: Tax relief is annually. You have until 31st October 2020 to claim tax relief for 2019. If you start today & register contributions for December revenue will apportion tax credits accordingly on My Account. Given your changing employments it’s important that you ensure all relief is fully claimed before you change jobs - just a technicality, you can’t back claim relief for contributions made while self employed if you are now in PAYE employment.

These things are all nice to know but really this is a job for an advisor. Well done on making inroads on building your journey but it’s not just about getting the product right.
Begin with the end in mind!

Thank you so much for answering all the questions.
Looks like my initial plan of the Non-Standard PRSA Execution Only with Davy-Select is still the way to go.

________________________________________________________________________________________________________________

A few comments:

1. What is ER and DDM?

7. I was asking more about signing up directly with Davy vs signing up via a pension broker for a reduced rate with Davy.
I think on this one I'll just call both the broker and company up and see who gives the better rate (and no harm getting advice from both).

10. Ok, I didn't realise it was annually. So I have just missed adding 2018 pension contributions then.

________________________________________________________________________________________________________________

Thanks for the advice, and I totally agree with you with the "Begin with the end in mind".
This is why I want to figure this stuff out now, and get a solid foundation in the beginning; so that I can focus on reducing expenses, getting promotions, investing as much as possible and becoming financially independent as early as possible.

Regarding the advisor, personally I like to research and have as much information as possible before having a consultation, so I'm just coming to the end of that research stage now, and I feel comfortable having an informed talk with an advisor.

Thanks again,

FireDuck

 

[LDFerguson]

When you are contracting, do you have a limited company for that? If so, you can set up an Occupational Pension Scheme (OPS) now , cease contributions to it in the future if you go into a full-time job with pension scheme and then if you go back to working through your limited company, you can re-start contributions and (if you choose to), transfer the fund from the "job" pension scheme into your own scheme.

1. What is ER and DDM?

ER is employer and DDM is Direct Debit Mandate.

10. Ok, I didn't realise it was annually. So I have just missed adding 2018 pension contributions then.

Correct. Be aware that a contribution by an employer (or by your own company if you have one for contracting) cannot be backdated into previous tax years for tax relief purposes. You can only claim tax relief on an employer / company contribution in the tax year in which it is physically made. So any employer / company contributions for 2019 need to be made in the next couple of weeks.

I would prefer to choose the investments myself.

• I'll be buying just two funds: Total Equity UCIT ETF & Total Bond UCIT ETF.

Given that your choice of funds is quite a straightforward one, you might find that instead of setting up a self-directed plan (e.g. Davy) you could achieve the same result at a lower cost with an "insured" arrangement e.g. a Standard Life PRSA, Personal Pension or Occupational Pension Scheme investing in Vanguard index-trackers. Other companies also offer index-tracking funds, e.g. New Ireland with State Street index-trackers. Ask the advisor to compare a Davy example, showing the cost for the Davy platform + the cost of the ETFs with the total cost of an insurance company equivalent.

 

[FireDuck]

When you are contracting, do you have a limited company for that? If so, you can set up an Occupational Pension Scheme (OPS) now , cease contributions to it in the future if you go into a full-time job with pension scheme and then if you go back to working through your limited company, you can re-start contributions and (if you choose to), transfer the fund from the "job" pension scheme into your own scheme.

Currently I'm using an umbrella company so I'm limited in what I can do.
However if it makes sense to create a limited company I will do that, I would only pay an extra 12 euro a month to my accountant to manage a limited vs an umbrella company (plus the initial setup cost, so it's not much more).
And as you say even if I go full time after this contract, when I go back to contracting (even after a few years) I can re-start the contributions to the OPS.

Are OPS's much better than a PRSA or personal pension? What benefits would I get through setting up my own OPS?

Correct. Be aware that a contribution by an employer (or by your own company if you have one for contracting) cannot be backdated into previous tax years for tax relief purposes. You can only claim tax relief on an employer / company contribution in the tax year in which it is physically made. So any employer / company contributions for 2019 need to be made in the next couple of weeks.

Okay so I really need to get it set up this week if I want to get my 2019 contributions in.

Given that your choice of funds is quite a straightforward one, you might find that instead of setting up a self-directed plan (e.g. Davy) you could achieve the same result at a lower cost with an "insured" arrangement e.g. a Standard Life PRSA, Personal Pension or Occupational Pension Scheme investing in Vanguard index-trackers. Other companies also offer index-tracking funds, e.g. New Ireland with State Street index-trackers.

To be honest once I can invest in total stock market and total bond market index tracker and it's low cost and passively managed I'm happy.
If the Standard Life PRSA has an index tracker that is less expensive than a non-standard ETF index tracking fund I'm fine with that.
It's just from what I've seen most annual fund charges are 1%, while the Davy-Select non-standard PRSA is 0.75% so it looked like the best value.

Ask the advisor to compare a Davy example, showing the cost for the Davy platform + the cost of the ETFs with the total cost of an insurance company equivalent.

I hadn't considered this, thanks for the suggestion.
I'll check with the advisor this coming week.

 

[LDFerguson]

Are OPS's much better than a PRSA or personal pension? What benefits would I get through setting up my own OPS?

An OPS allows your employer / company scope to make much larger contributions towards your pension than a PRSA or Personal Pension. Tax relief on contributions to a Personal Pension or PRSA are limited to age-related percentages of salary. An employer can put in larger contributions, limited by the expected pension at retirement.

An OPS or a PRSA related to a PAYE employment will allow early retirement from age 50 onwards provided that you sever all ties with the employer at that time; a Personal Pension allows earliest retirement at age 60 except in a case of serious ill-health.

An OPS allows you to choose the better of two methods of calculation of your tax-free lump sum at retirement. A PRSA or Personal Pension allows only one - 25% of the fund.

An OPS is linked to a particular employer while a PRSA or Personal Pension can be carried with you through differing employments.

An OPS requires a trustee. Some pension companies will pay for a professional trustee if they're getting the pension business. Others won't. A PRSA or Personal Pension don't require a trustee.

To be honest once I can invest in total stock market and total bond market index tracker and it's low cost and passively managed I'm happy.
If the Standard Life PRSA has an index tracker that is less expensive than a non-standard ETF index tracking fund I'm fine with that.
It's just from what I've seen most annual fund charges are 1%, while the Davy-Select non-standard PRSA is 0.75% so it looked like the best value.

Remember that with a self-directed arrangement like Davy, the 0.75% is the charge to Davy and then you'll pay an additional charge on top for the chosen ETFs.

On any of the insured pension arrangements there are a range of charging options available. The difference between them largely depends on how the advisor / broker is being remunerated, as well as the size of contributions. It's certainly possible to get <0.75% but that's for you and the individual advisor to work out as there's no "standard pricing". When discussing charges with the advisor, you should come away knowing how much all interested parties are being paid...(1) the pension company (e.g. Davy, Standard Life, New Ireland etc.), (2) the fund manager (e.g. the ETF provider, Vanguard etc.) (3) the pension scheme trustee (if applicable) and (4) the advisor. Often the advisor is paid by commission from the pension company charges and that's an efficient method of payment, but you should certainly know how much the advisor is being paid as well as the other three parties. The pensions industry is peppered with lots of jargon relating to how charges are expressed, e.g. allocation rates, policy fees etc. It's part of the advisor's job to explain these to you in language you can understand.

 

[Pedros20]

@

Did you come to a conclusion regarding the choice

Non-Standard PRSA Execution Only with Davy-Select v Standard Life PRSA or other PRSA