PRSA or AVC

Mikefromcork

Registered User
Messages
16
Hi All
I recently joined a public body. I met with a cornmarket rep and he adviced on setting up an avc with them. Prior to this I had a PRSA with Zurich.
I have been told that payroll will generally facilitate any payments.
I am wondering which I should go with or does an AVC differ from a PRSA.
best wishes
Michael
 

GSheehy

Registered User
Messages
477
Payroll will facilitate payments if you buy the product via cornmarket. But, you can simply make the tax relief adjustment yourself via the Revenue 'My Account' if you didn't want to buy from cornmarket.

There's an Occupational Pension AVC Scheme and a PRSA AVC.

They both serve the same purpose but there's more transparency of costs/charges with the AVC PRSA. You'd probably have a greater fund choice with the PRSA and, to the best of my knowledge, you'd have to do the OP PRSA with Irish Life.

There is no disclosure of commissions requirement with an occupational pension AVC scheme.

Gerard

www.prsa.ie
 

Jonocon12345

Registered User
Messages
13
Hi. I am not sure if I am on the right thread. I am 50 and don't have a pension. I do own property and am wondering is it possible to transfer one into a pension and gain the benefits of tax free income when I retire? Thanks
 

Conan

Registered User
Messages
1,318
Hi. I am not sure if I am on the right thread. I am 50 and don't have a pension. I do own property and am wondering is it possible to transfer one into a pension and gain the benefits of tax free income when I retire? Thanks
No. Any property purchase must be "arms length". But in any event, the facility to purchase property as a pension scheme asset is now very limited (mainly limited to a PRSA).
 

Jonocon12345

Registered User
Messages
13
No. Any property purchase must be "arms length". But in any event, the facility to purchase property as a pension scheme asset is now very limited (mainly limited to a PRSA).
Hi, thanks for reply. I don't have a PRSA but is it possible to set one up and 'invest' the property in it?
 

Conan

Registered User
Messages
1,318
No. Any property purchase must be "arms length". The pension fund cannot buy a property you already own.
 

Marc

Registered User
Messages
1,519
Hi All
I recently joined a public body. I met with a cornmarket rep and he adviced on setting up an avc with them. Prior to this I had a PRSA with Zurich.
I have been told that payroll will generally facilitate any payments.
I am wondering which I should go with or does an AVC differ from a PRSA.
best wishes
Michael

Its a very difficult question to answer because costs are not easily comparable.

Generally speaking you will always have more investment choice with a PRSA AVC than from the in house AVC options.

But this is not necessarily a good thing especially if you make poor investment choices (like trying to put rental property into a pension for example)

Its easy to find examples of investments which have provided higher returns in the past here are two of the funds in my pension compared to an Irish Life Global Index tracker for example

1624960471011.png

1624960520733.png


If I could reliably obtain 1%pa above the market then yes it would always be worth setting up a PRSA AVC but its hard to do this consistently and most people fail miserably.

Our rule of thumb is that if you arrange a PRSA AVC with a life insurance company then you have essentially exactly the same fund choices as your in-house AVC provider and there is really nothing to be gained by setting up an insurance company scheme when the main scheme AVCs will almost certainly be administered by an insurance company.

If you establish a whole of market scheme and get competent investment advice then yes, you might be able to eek out a better return but there are no guarantees that you will

What is the maximum pension contribution you can make?

This is a regular trick question of mine at financial adviser conferences and you would be amazed how many people get it wrong.

There is no maximum contribution, just a maximum contribution which qualifies for tax relief and a maximum sensible contribution based on the Revenue maximum funding rules

An AVC plan forms part of the main Scheme and, as such, the Trustee of the main Scheme will monitor for possible over-funding (overpayment). This position may occur if your personal account provides a pension that would bring you over the maximum pension limit.

A basic maximum accrual rate of one-sixtieth of final remuneration for each year's service is approvable for any period of service of 40 years or less (a pension on this basis is commonly described as a pension of N/60ths).

The calculation of final remuneration is the average of the total emoluments for any three or more consecutive years ending not earlier than ten years before the relevant retirement date.

Normally the retirement benefits which are payable under the rules of your main company pension plan are lower than the maximum benefits which are permitted by the Revenue Commissioners.

Therefore, most people have scope to pay AVCs to increase their retirement benefits. For example, some of your earnings may not be included in the calculation of the pension amount payable from your main plan - e.g. overtime, bonuses, commissions or car allowance or you may have entered your pension plan at an age when you are not expected to receive full pension benefits from your company’s main pension plan when you retire.

If you are a member of an occupational pension scheme in the private or public sector, you can make additional voluntary contributions as an AVC to the main scheme, in a defined benefit scheme you may be able to purchase “added years” or a notional service pension or you could contribute to a PRSA.

If you make additional voluntary contributions to a PRSA, then your benefits will be subject to the rules of the scheme and the Revenue limits applying to occupational pension schemes.

You should note however that there are now maximum fund thresholds in place. A fund threshold is the maximum fund that a person is permitted to have for providing retirement benefits. If your fund is greater than the fund threshold then the amount in excess of the threshold will be subject to income tax at your marginal rate when you retire. The maximum fund threshold is €2.0 Million Euro.

From the Revenue pension manual


Tax relief in respect of contributions in any one tax year is subject to the limits for employee contributions, as detailed in Chapter 3.

Relief for employer contributions is subject to the rules in Chapter 4 .

The limits on Tax Relieved Pension Funds also apply, please see Chapter 25.

Care must be taken to ensure that overfunding does not occur, as surplus funds may have to be refunded to the employer and taxed as a trading receipt.

Details of maximum retirement benefits are contained in Chapter 6.

Additional voluntary contributions (AVCs) can be made if the total of employer contributions and employee normal contributions do not exceed the above limits and the total employee contribution limits as outlined in Chapter 3.

So in conclusion there are two clear risks here.

1) Maximum benefits that are available from the occupational scheme need to be assessed against the best 3 years in the previous 10 years

2) Pension benefits in excess of the SFT currently €2m suffer an effective marginal rate of tax of over 70%

so care needs to be take not to overfund a pension via AVCs and in the worse case scenario an overfund goes back to the EMPLOYER. Not such a bad outcome if you own the company but a poor outcome for an employee.

BUT,

you are getting gross roll up free from personal taxes so all things being equal you will accumulate a larger fund than you would under an alternative personal investment option.

It is possible to prefund a PRSA AVC with a lump sum and to carry forward unused tax relief against future years income but great care must be taken not to overfund against maximum revenue benefits




Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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Murky18

Registered User
Messages
12
Hi All

just a quick one in relation to above, i have recently joined employer contribution scheme, both contribute 10%, i have scope to add another 10% with my age limits. the annual fees are 1.5% . should i do the avc with the occupational scheme or can i source another one myself.?

thanks
 

AJAM

Registered User
Messages
90
A 1.5% Annual Management Charge is very high. In a PRSA the legal maximum annual fee is 1%.
I would not accept anything higher than 0.75%.
So possibly the best thing to do, is make sure you are getting the max employer contribution.
Then put any additional in a PRSA with an annual fee of 0.75% or less.
 

Marc

Registered User
Messages
1,519
There are no disclosure regulations that apply to Irish Pensions.

An annual management charge is NOT the total cost of an Irish Pension.

Its very possible that a contract quoting 1.5% has half the actual charges of a contract quoting 0.75%
 

SGWidow

Registered User
Messages
212
If you make additional voluntary contributions to a PRSA, then your benefits will be subject to the rules of the scheme and the Revenue limits applying to occupational pension schemes.

I was speaking with my acountant this morning - the poor man says he has to work at least Saturdays during tax season. He asked me to check out something as it's not his area of expertise but he likes getting "comfort" on things........a "measure twice" man.

Under the Revenue Pensions Manual the Lump Sum for PRSA-AVCs is:

a tax-free retirement lump sum paid when PRSA assets are first made available
to the individual, which does not exceed 25% of the fund or, in the case of an
AVC PRSA, the amount that may be paid by way of lump sum under section
772(3)(f) TCA;


The Revenue limits applying to occupational pension schemes allow for an "uplited scale" whereas the TCA section quoted above just provides for the basic "3/80ths" lump sum. He said it would be prudent to see where it is documented that AVC PRSAs can use the "uplifted scale" - as a bare reading of the Revenue Manual and the quoted TCA section does not seem to support this?
 

SGWidow

Registered User
Messages
212
I forgot to mention one other point my accountant queried, as follows - where are the rules written which sets out what happens if a single PRSA account was used for both AVCs and non-AVCs? His point being that such a scenario is also not covered by the quoted section of the Revenue manual above (and didn't appear to be covered by any other section either.)

[He wasn't saying that this stuff ain't set out anywhere - he was just wondering where!]
 

bstop

Registered User
Messages
199
Just make your yearly contributions to your AVC'S or PRSA. When you retire the providing company will calculate the maximum tax free lump sum available. In my experience Zurich were the most skilled in this regard.
 

SGWidow

Registered User
Messages
212
That's certainly one approach, bstop

Personally, when going on a journey, I like to know the destination!!
 

jpd

Registered User
Messages
2,588
Unfortunately, with pensions it is impossible to know the destination as there are too many random variables to take into account - lifetime, government rules, investment returns to name just a few
 

NotMyRealName

Registered User
Messages
56
It is possible to prefund a PRSA AVC with a lump sum and to carry forward unused tax relief against future years income but great care must be taken not to overfund against maximum revenue benefits

Marc,
Does this mean that ,say a student, could pre-fund a PRSA for a number of years and then claim the relief when they enter the world of employment?.......and, if so,how is max funding calculated?
 

Marc

Registered User
Messages
1,519
Yes that’s exactly what we do.

We have several families as clients where we have established a family partnership and the parents have invested substantial sums in the children’s names.

Which is great for CAT planning but it does mean that they are generally using up their allowances and exemptions with dividend income.

This is fine for planning purposes but you should see the look on an 18 year olds face when they earn €5 grand in a summer job and get stiffed for 52% tax!

So joined up thinking says lash in a lump sum to a PRSA as soon as possible. 18 is earliest possible in Ireland and we really like using the €16k exemption from granny as it’s a proper intergenerational skip (it’s from birth in the U.K. and I just met the first grandchild of an intergenerational plan recently where her gran paid into a U.K. pension when she was a child and now in her 30s she’s set for life)

It’s all here


anyway I digress

So the maximum funding becomes relevant when they join an occupational scheme. The trustee needs to know that the PRSA is in existence and it is designated as a PRSA avc.

They just keep an eye on the revenue maximum pension limits to avoid overfunding.

 
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MugsGame

Frequent Poser
Messages
2,690
Which is great for CAT planning but it does mean that they are generally using up their allowances and exemptions with dividend income.

This is fine for planning purposes but you should see the look on an 18 year olds face when they earn €5 grand in a summer job and get stiffed for 52% tax!

But surely the exact opposite happens if the child's investment is made through the pension vehicle? (not only does the investment grow tax free, but the historical pension contributions may reduce the income tax due on the summer job).

Is there no requirement that the pension contribution be made from earned income in order to qualify for tax relief? Or is it sufficient that the tax relief itself be later applied against earned income?
 
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