PRSA or AVC

Steven Barrett

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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!]
A life company sets up a PRSA with umbrella policy number 1. You are in non pensionable employment and make a pension contribution so it goes into PRSA 1/a. You then join a pension scheme and want to make an AVC payment. So it goes into PRSA 1/b, which is a PRSA avc plan. Or else the life company sets up two completely different policies, a PRSA and a PRSA AVC plan.

The one stop policy that you can bring everywhere was a lie.

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.
If you are in pensionable employment, you must make pension contributions into an AVC plan or a PRSA AVC plan. If you are a member of a scheme and you make contributions to a personal plan, you cannot claim tax relief on the contributions. it is very important you make the contributions into the correct pension.


Steven
www.bluewaterfp.ie
 

SGWidow

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212
@Steven Barrett

Thanks Steven for that. That's interesting although how an PRSA provider could manage to track PRSA contributions versus PRSA AVCs over an extended career with multiple switches between pensionable and non-pensionable employment combined with multiple fund switches is beyond me!

I suppose my main query is, as set out, in #13.

This query isn't even for me - it's for a pal of mine. As things stand, she won't get the rev max lump sum (as she worked part-time, etc.). She would prefer to do an AVC PRSA rather than the Cornmarket AVC because of the charges Cornmarket levy. However, from my accountant's reading of the Revenue Manual and the quoted section of the TCA, it seems that lump sums from PRSA AVCs are restricted to 3/80ths and not the uplifted scale.

All the marketing material out there suggests that one can use the uplited scale - i.e. that there is no difference in the application of a PRSA AVC only fund compared with an AVC only fund at retirement. Otherwise put, my accountant is missing something which, of course, is possible and which he, himself, accepts.

In essence,

(a) Can PRSA AVCs be used to bring someone's tax free lump sum up to rev max using the "uplifted scale"?

(b) If (a) is indeed possible, why does the quoted section of the TCA not apply?
 
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Steven Barrett

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@Steven Barrett

Thanks Steven for that. That's interesting although how an PRSA provider could manage to track PRSA contributions versus PRSA AVCs over an extended career with multiple switches between pensionable and non-pensionable employment combined with multiple fund switches is beyond me!
It's not that difficult. When the money is paid in, they ask.


For someone in a DB pension, their lump sum is calculated on the final salary method. So any AVC payments are also used on that method and the 25% tax free lump sum is not available.

Under DC arrangements, if you use the final salary method, you must purchase an annuity with the remainder. The 25% option is also available and an ARF must be used with the remainder.


Steven
www.bluewaterfp.ie
 

Zeus2020

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Hi Stephen I’m db scheme so what happens to the remainder of your money in prsa/ prsa avc after the lump sum is taken as I have both funds
 

Conan

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If you have a PRSA AVC (or a simple AVC fund), you should firstly use it to top up your Lump Sum from the Occupational Scheme to the Revenue max.
If there is funds remaining, then you have 3 options:
1. Invest the balance into an ARF
2. Buy an Annuity
3. Take it as taxable income in the year you retire

Using an AVC/ PRSA AVC to maximise your scheme lump sum (particularly in a DB Scheme) is a very tax effective investment strategy. Ideally do not retire leaving potential (tax free) lump sum money on the table behind you.
 

SGWidow

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212
Thanks Conan,

The narrative generally is that one can use a PRSA AVC to fund the gap between the lump sum scheme benefit and Rev max.

I have quoted my accountant's concerns re this in #13 and the specific questions to Steven in #22 which remain unanswered.

For convenience, I shall repeat here my questions to Steven:

(a) Can PRSA AVCs be used to bring someone's tax free lump sum up to rev max using the "uplifted scale"?

(b) If (a) is indeed possible, why does the quoted section of the TCA not apply?


The relevant sections in (b) are:

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;

Section 772(3)(f) just provides for lump sums based on the "3/80ths" formula - i.e. not the uplifted scale.

Conan - we have engaged on this on another thread also. I hope that your position is correct - it's just that it seems in direct conflict with the legislation quoted. All I'm looking for is an explanation why 772(3)(f) can be disregarded.
 

Conan

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You need to distinguish between DB Schemes and D.C. Schemes (D.C. Occupational, Personal Pensions and PRSA’s). In a typical DB scheme, rules may state that the Lump Sum is defined as 3/80ths of final Salary for each year of service (typical Public Service). However under Revenue rules, the uplifted scale can apply to any with over 10 years service (where at least 20 years service can get you the max of 120/80ths -150% of Final Salary).
So if you have short service (but say more than 20 years), the Scheme rules may not entitle you to the max Lump Sum. But Revenue will allow a lump sum of up to 150%. That’s where AVC (or PRSA AVC) can bridge the shortfall. This is fully explained in the Revenue Pensions Manual ( see section on Retirement Lump Sum).
If however your funds are entirely D.C. then you are only entitled to take 25% of the fund(s) value as a Lump Sum.
 

Zeus2020

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Hi Conan thank you for reply in option3… take it as taxable income on the year you retire I pay no tax at present as I only work part time and fall below 20% treshhold with tax credits so can I take it as income and pay no tax or very little tax…..is that an option for me ..?.
 

Conan

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1,413
If your total income in the year (including any residual AVC fund) is below the tax threshold then you are correct. Even if you slightly exceed the 20% threshold, the tax hit will be small.
 

SGWidow

Registered User
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212
Conan,

You describe DC schemes as
(D.C. Occupational, Personal Pensions and PRSA’s).

and then go on to say

If however your funds are entirely D.C. then you are only entitled to take 25% of the fund(s) value as a Lump Sum.

This is flat wrong. Members of occupational DC plans can take tax free lump sums based on salary and service. I sincerely hope that it was not your intention to say this.


Also, I just want to put on record that my specific questions regarding the uplifted scale were not answered. I'll not be seeking this information for a fourth time!
 

Conan

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1,413
SG
In a DC scheme you CAN go the salary and service basis, BUT if you do you must buy an Annuity with the balance (no ARF option). We have a Finance Bill due shortly, and there is speculation that some changes may be made, such as abolition of AMRFs, abolition of 15 year rule for transfers to PRSAs etc.

As for S772(3)(f), you are ignoring the Revenue Pensions Manual which more specifically deals with the rules governing Pension Schemes. This allows for an "uplifted scale" - see Chapter 7 of Manual.
 

SGWidow

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212
Ah come on now, Conan - you're having a laugh!

You're the one that said that for DC plans you are only entitled to take 25% of the fund. [Your clarification is an improvement on your previous post but still innaccurate or, at best, misleading/incomplete. I'm not going to waste more time explaining this and I don't want to go off on that tangent!]

As for S772(3)(f), you are ignoring the Revenue Pensions Manual......

Are you having more laughs?! This query emanated from reading the RELEVANT SECTION of the Pensions Manual!!

The reference to s772(3)(f) comes from Chapter 24, i.e. the chapter expressly dealing with PRSAs.

I will try rephrase my central questions. Once more into the breach and all that.

1. Do you understand what chapter 24 of the Revenue Manual is saying about lump sum benefits upon retirement for PRSA AVCs?

2. What do you think s772(3)(f) means?


Further, if you look up - Notes for Guidance, Taxes Consolidation Act 1997, Finance Act 2020 edition
Part 30 Occupational Pension Schemes, Retirement Annuities, Purchased Life Annuities and Certain Pensions - the explanation of the amount that can be taken tax free from a PRSA AVC is consistent with my accountant's interpretation.
 

SGWidow

Registered User
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212
Conan,

Thanks for your, ahem, guidance!

I still live in the hope that someone out there in AAM land will, at least, understand my/my accountant's perfectly legtimate questions.

All I will say is that the answers to date on this thread have not been inspiring!
 

Zeus2020

Registered User
Messages
25
If your total income in the year (including any residual AVC fund) is below the tax threshold then you are correct. Even if you slightly exceed the 20% threshold, the tax hit will be small.
Thanks Conan for reply ..made my day as cornmarket told me a few years that investing in prsa was a waste of time ignored this advice ..only stopped because I stopped paying tax
 

elacsaplau

Registered User
Messages
892
This is a very interesting thread.

I must admit that on the face of it, PRSA AVCs should not be used if targeting the Rev Max Lump Sum.

Obviously, this is not what the industry is doing, so it would be interesting to get an explanation for this?
 
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