Pension - PRSA for a Child

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silverfox23

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Wanted to find out if anyone knew if its possible to open a PRSA pension for a child (newborn)?

I get that there would be no tax relief as the child does not have earnings.

But you would get around deemed disposal, its a good place to stick the €3k small gift exemption each year and even when they turn 18 money is effectively locked away until they retire.

For a cost of €54k to the parent (3k a year for 18 years) the child (with no additional contributions) would end up with a pension pot well over €1m at the age of 66 assuming 6% growth per year.

Its too good to be true so I'm guessing its not possible.
 
If, as mentioned above, opening a PRSA involves entering into a contract with the PRSA provider then isn't the earliest that one can do so 18 years old in general?

Children and rights in Ireland

This document describes a child's rights in areas such as education, employment, travel, recreation, health and relationships.
www.citizensinformation.ie www.citizensinformation.ie
Contracts

You cannot enter a legally binding contract until you are aged 18.
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It’s a great idea. Do the small gift into a trust. At age 18 transfer the full balance to a prsa. When they start working then they will get tax relief on the amount transferred to a prsa and will have their pension sorted.
 
@ClubMan Good find on the contracts piece especially the exceptions.

You cannot enter a legally binding contract until you are aged 18. The exception to this is contracts for necessaries and beneficial contracts of service which are in your best interests. Contracts for necessaries usually include contracts for food, clothing and lodging, but may also cover contracts for items connected with education and training such as school books and training uniforms.

Beneficial contracts of service usually involve contracts for apprenticeships or contracts with agents or managers. These contracts of service are only enforceable if they are to your advantage and in your best interests.



Anyone with a legal background know if you could use the exceptions above to get a PRSA provider to open one for a child?
 
silverfox23 said:
Anyone with a legal background know if you could use the exceptions above to get a PRSA provider to open one for a child?
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I'd imagine that this question might be clarified by reading the relevant tax legislation, tax briefings, practice manuals etc.

I suspect that if PRSAs for children were possible then the pensions industry would be marketing and selling them already.
 
nephster said:
Somewhat related was a question covered in the IT very recently regarding putting that 3K a year into a savings account:
www.irishtimes.com

What are my options if I want to save money for my grandchild?

Q&A: All the banks offer parents, and sometimes grandparents, accounts to save for young children; they just don’t say much about them
www.irishtimes.com www.irishtimes.com
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Not at all related to the question of PRSAs or trusts for child savings/gifts.
And paywalled for most people anyway.
 
ClubMan said:
Surely, once of age the 18 year old can do what they want with the trust?
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It depends on how the trust was written. They don't all end at 18 (or 21). The trustees must act in the best interests of the beneficiary. They may conclude (or the trust may compel them to so) the best interests are to establish a pension provision through a PRSA.
 
ClubMan said:
Not at all related to the question of PRSAs or trusts for child savings/gifts.
And paywalled for most people anyway.
Click to expand...
Well, seeing as the answer to the OP's question is almost certainly No, I would suggest it's *highly* relevant as an alternative of what to do with that cash, without involving a solicitor to draw up a trust. The underlying question is what is best to do with the money; they didn't ask about trusts either, did they?
 
Oisin19 said:
Exactly The prsa is in effect a trust that kids can’t access until 50 at the earliest. It ticks so many boxes. It will also be a significant asset
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I am not so sure tying money up until they are 50 (is it not 60 for a PRSA?) would suit most.....

There are so many life events that will likely require financial assistance between, college, wedding, buying house, IVF, children etc....tying the money up until their retirement age is of little use in my view.

When they need the money are we instead training our little ones to sacrifice their future pension contributions so they can save for those life events....
Another challenge is trying to convince them to start making pension contributions when they enter the workforce, knowing there is a pot of money there already. (Annual statement)
 
Oisin19 said:
It’s a great idea. Do the small gift into a trust. At age 18 transfer the full balance to a prsa. When they start working then they will get tax relief on the amount transferred to a prsa and will have their pension sorted.
Click to expand...
This isn't earned income and therefore not pensionable. If it was transferred into a pension, the Revenue can quite easily ask for source of income before granting tax relief. If it is shown that the policyholder had no source of income at the time, they could quite easily just reject the claim.

Oisin19 said:
Exactly The prsa is in effect a trust that kids can’t access until 50 at the earliest. It ticks so many boxes. It will also be a significant asset
Click to expand...
Under PRSAs, they have to actually retire to access the PRSA from age 50. Most will not be in a position to do that.
Scoobydoobydoo said:
I am not so sure tying money up until they are 50 (is it not 60 for a PRSA?) would suit most.....

There are so many life events that will likely require financial assistance between, college, wedding, buying house, IVF, children etc....tying the money up until their retirement age is of little use in my view.
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This is 100% correct. What is the point in gifting someone money as a child that they cannot access until they are almost retired?!! You might as well just leave it to them in your estate, they will probably get access to it earlier through inheritance!!!

silverfox23 said:
But you would get around deemed disposal, its a good place to stick the €3k small gift exemption each year and even when they turn 18 money is effectively locked away until they retire.
Click to expand...
A case of the tail wagging the dog. In an effort to avoid deemed disposal (which is deducted from the tax due on the real disposal), it would in effect nullify the whole purpose of giving the money in the first place i.e. helping your children out financially when they need it most, which is when they are starting out with a new home/ new family.

silverfox23 said:
@ClubMan Good find on the contracts piece especially the exceptions.

You cannot enter a legally binding contract until you are aged 18. The exception to this is contracts for necessaries and beneficial contracts of service which are in your best interests. Contracts for necessaries usually include contracts for food, clothing and lodging, but may also cover contracts for items connected with education and training such as school books and training uniforms.

Beneficial contracts of service usually involve contracts for apprenticeships or contracts with agents or managers. These contracts of service are only enforceable if they are to your advantage and in your best interests.



Anyone with a legal background know if you could use the exceptions above to get a PRSA provider to open one for a child?
Click to expand...
That is a long reach and not what the exception is intended for. It is not essential for a minor to have a pension. If a 16 year old is employed, they can enter an employment contract as they need to be able to enforce their rights. Or if they buy a pair of shoes in a shop, it is a contract so their rights are protected under the sales of goods and services act.
 
Steven Barrett said:
This isn't earned income and therefore not pensionable. If it was transferred into a pension, the Revenue can quite easily ask for source of income before granting tax relief. If it is shown that the policyholder had no source of income at the time, they could quite easily just reject the claim.


Under PRSAs, they have to actually retire to access the PRSA from age 50. Most will not be in a position to do that.
Click to expand...
You don’t need to be working to contribute to a prsa. You can always draw down the relief in the future once you are in non pensionable employment.

The tax relief is a small point. 30 years of tax free growth is what this is about. We are clearly talking about estate planning here. Of course you wouldn’t do it if they couldn’t afford it
 
Exactly @Oisin19 the main point here is "tax free growth" for a long period of time with the advantage (not a negative) that its locked away.

Came across this article when googling the contract exemptions & PRSA keywords and so it looks like some people are trying to work out PRSA pensions for children. I'll do further digging.

everlake.ie/articles/i-dont-believe-in-pensions/
 
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