PRSA + limited AVC option + no lfe insurance bolt on

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carpedeum

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I have just started a new job. I made 28 years of pension contributions into a defined benefit scheme with my previous employer which I am leaving in that pension scheme to draw down later.

The new employer has a PRSA scheme whereby they contribute 5% and I contribute 5%. I want to contribute AVC's, but, was told that the maximum allowed was 5%. I am in my late 40's. The financial advisor commented that "this was one of the reasons why PRSA's have been a disaster for the Government. The rules were drawn up by some civil servant smug in the knowledge that his pension was DB and inflation proof etc at taxpayers expense, taxpayers like you and me!" The only option given to me was Irish Life. While I have nothing against IL I would have thought since the PRSA will be mine and portable from job to job I would have been offered a few options. Note: this is a foreign start-up company and there is no internal HR Dept.

Is the limit of 5% on AVC's correct? There is also no life insurance (of interest to me being a married man with a family) added to the company's pension offer. Is this normal for these newer PRSA company pension schemes?

I realise that the tax relief is quite good on contributions, but, I am considering opting out and going some other investment route. I also have a concern about the whole PRSA route for my two near-college leavers! I am also in the middle of recruiting a team of young employees and am similarly concerned for them. Is the PRSA the only game in town?
 
carpedeum said:
The new employer has a PRSA scheme whereby they contribute 5% and I contribute 5%. I want to contribute AVC's, but, was told that the maximum allowed was 5%.

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Is the limit of 5% on AVC's correct?
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I thought that you could contribute 5% and get the employer 5% matching contribution, contribute 5% AVC and then have another separate AVC PRSA to contribute up to the remainder of your tax relief limit? I am not 100% sure about this though.
There is also no life insurance (of interest to me being a married man with a family) added to the company's pension offer. Is this normal for these newer PRSA company pension schemes?
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Some employers offer life assurance as part of their benefits package. Some don't.
I realise that the tax relief is quite good on contributions, but, I am considering opting out and going some other investment route.
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At worst surely you can get 15% into your pension (5% employee, 5% employer, 5% AVC) and maybe you can also do what I outlined above for additional AVCs. You should certainly consider doing this rather than ditching the pension altogether and going the non tax deductible investment route - i.e. don't throw the baby out with the bathwater!
I also have a concern about the whole PRSA route for my two near-college leavers! I am also in the middle of recruiting a team of young employees and am similarly concerned for them. Is the PRSA the only game in town?
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No - there are occupational pension schemes and personal pension funds as well.

What charges apply and funds are available under the employer's PRSA? Who is the financial advisor to whom you refer?

It may also be possible for your to forget about the employer's scheme altogether and just open your own PRSA possibly with lower charges but then you would presumably lose out on the 5% employer contribution unless you can negotiate with them to put this into your private PRSA (again I'm not 100% sure that the rules would allow them to do this).

If your main point is that pension rules are complex and there is no one size fits all solution then I would totally agree with you. If you are saying that PRSAs are largely useless then I would totally disagree.
 
carpedeum said:
The new employer has a PRSA scheme whereby they contribute 5% and I contribute 5%. I want to contribute AVC's, but, was told that the maximum allowed was 5%. I am in my late 40's. The financial advisor commented that "this was one of the reasons why PRSA's have been a disaster for the Government. The rules were drawn up by some civil servant smug in the knowledge that his pension was DB and inflation proof etc at taxpayers expense, taxpayers like you and me!"
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That's quite wrong on several levels. If you want to voluntarily pay more than 5% to the PRSA, there should be no restriction on you doing so. While in your 40s, you can contribute up to 25%, including your employer's 5%. So you can put in 20% while your employer puts in 5%. The term AVCs doesn't apply to PRSAs - you simply put in a larger contribution.

I have no strong political affiliations, but I can categorically deny that PRSAs have been a disaster for the Government. Take-up has been slower than was originally anticipated but is accelerating year on year. Tell the financial advisor to have a look at the Pensions Board figures on the take-up of PRSAs. Ask them to explain exactly what they mean about PRSAs being a disaster. They're a disaster for pension sales people who had got used to getting 50% of clients first year contributions, perhaps.

carpedeum said:
There is also no life insurance (of interest to me being a married man with a family) added to the company's pension offer. Is this normal for these newer PRSA company pension schemes?
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It's not possible to include life assurance or income protection into a PRSA. Such cover must be arranged separately. Some employers set up PRSAs and separate life assurance / income protection schemes, but there's no obligation on an employer to do so. However, as you're not a member of an Occupational Pension Scheme, you can set up your own life assurance or income protection cover in such a away that you will receive tax relief in full on the premiums at your highest rate.

carpedeum said:
I realise that the tax relief is quite good on contributions, but, I am considering opting out and going some other investment route.
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If the terms of your employer PRSA arrangement are such that you must contribute 5% to avail of your employer's 5%, you should avail of that - you do 5% and your employer will contribute 5%. I would be very reluctant to miss out on free money like this. But then there's nothing stopping you from starting your own PRSA with a separate provider for any additional amounts. You may be able to get a better charging structure than your employer's arrangement. You'd certainly have a wider choice of funds. You'd pay by Direct Debit and submit a claim for your tax and PRSI relief.

carpedeum said:
I also have a concern about the whole PRSA route for my two near-college leavers!
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What's your concern?

carpedeum said:
I am also in the middle of recruiting a team of young employees and am similarly concerned for them. Is the PRSA the only game in town?
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No it's not, but if your employer has set up the arrangement as you describe, there's no obligation on them to change unless they can be convinced to do so. And the 5% Employer contribution is also 5% more than they are obliged to contribute.

Regards,

Liam D. Ferguson
www.ferga.com
 
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