PRSA Query

[PM1976]

Hi All,

I have a query regarding a prsa.

My parents took out two prsas in 2007. They both used SSIA money that matured. They are both over 65 (72 & 69 yrs old). They initially invested €7,500 each.

The reason they took out the prsas was to avail of a lump sum rebaid from the revenue (I think they followed advice from a newspaper article).

They recently received an update on the prsa and it seems they can withdraw 25% now and receive and a monthly income of €55.
If they want all there money they are subject to income tax on the full amount less the 25% (Maturity value €10,500).

As far as I can see they will lose money on the PRSAs as they will be cashing them in and will most likely be in the higher tax bracket.

So instead of having the initial €7,500 from there ssias they will have to pay tax on 75% of the 10,500.

Has anyone ever come accross this before ?. Am I correct in what I am thinking above. Would a company accept an investment from people of there age ?, if they don't cash out the prsa they will never recover there money unless they live an extremely long time.

Any help would be greatly appreciated.

Many thanks

 

[ClubMan]

The reason they took out the prsas was to avail of a lump sum rebaid from the revenue (I think they followed advice from a newspaper article).

You mean the [broken link removed]?

They recently received an update on the prsa and it seems they can withdraw 25% now and receive and a monthly income of €55.

Yes - that is normally an (the?) option when a pension matures.

If they want all there money they are subject to income tax on the full amount less the 25% (Maturity value €10,500).

Are you sure that this is even a possibility?

As far as I can see they will lose money on the PRSAs as they will be cashing them in and will most likely be in the higher tax bracket.

So instead of having the initial €7,500 from there ssias they will have to pay tax on 75% of the 10,500.

Has anyone ever come accross this before ?

It sounds correct based on what you have posted. Perhaps double check in case there might be other options - e.g. rolling it over into an A[M]RF but maybe not given the figures involved.

Am I correct in what I am thinking above. Would a company accept an investment from people of there age ?

Yes - of course. Why would they not? It's up to the individual to get independent, professional advice on what is appropriate for their own specific needs.

if they don't cash out the prsa they will never recover there money unless they live an extremely long time.

Are you sure that they can cash in the PRSA in full at all? I doubt it.

 

[LDFerguson]

If your parents both have other income of at least €12,700 per year each guaranteed for life (including State pensions) they do have the option of withdrawing all of their PRSA, with 75% of the fund being taxable at their appropriate rate.

They also have the option of buying an annuity (guaranteed pension for life) with the 75% (this would be the €55 per month income). Bear in mind that they can shop around for this annuity.

Or - they can invest the 75% of fund into an Approved Retirement Fund, from which they can withdraw at their own discretion.

If they don't have the €12,700 annual income from other sources, they're limited to 25% of fund tax free and annuity thereafter.

In either case, they do have the option to defer the withdrawal of their fund until markets recover, provided that these PRSAs were not AVC PRSAs.

If your parents were sold PRSAs that evidently have equity market exposure, were the risks and long-term nature of such a fund choice explained to them?

 

[ClubMan]

If your parents both have other income of at least €12,700 per year each guaranteed for life (including State pensions) they do have the option of withdrawing all of their PRSA, with 75% of the fund being taxable at their appropriate rate.

Sorry - I wasn't aware of that being an option.