Recently retired, have a small PRSA, any benefit to switching to an ARF?

Shirazman

Registered User
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476
Situation as follows:
The wife recently turned 60 and has started to draw a small teaching pension (~€10k p/a).
In 2006 she opened a small PRSA with the proceeds of her SSA (to avail of the Pensions Tax Incentive Scheme introduced by Brian Cowen).
She hasn't touched the PRSA since and it's now worth about €20K.
Our understanding is that she can leave the PRSA where it is until she turns 70.
Alternatively she could encash it and draw 25% tax free but due to her small pension, she would have to invest the balance in an AMRF which didn't appeal to her. Furthermore she would have been liable for the annual minimum withdrawal of 4% of the Fund's value.

Now that AMRFs are being abolished we are wondering whether there is any advantage to switching to an ARF or would we be as well leaving her PRSA* untouched for the next few years as we have no immediate requirement for cash.

Thanks.

* PRSA is invested in two Zurich Funds (Balance 33%, Dynamic 67%) which have recorded good growth over the past few years.
 

bstop

Registered User
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306
If she starts an ARF soon she will achieve several years of S class PRSI contributions. These could qualify her for the over 65's payment. She would need to make monthly withdrawals from the ARF to get 52 S contributions per year. Without the S class ccontributions she would need to get a job for 13 weeks at age 63 to qualify assuming she is signing on for A class prsi credits.She should also try to make extra payments into her PRSA if this is possible.
 

elacsaplau

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892
Hey Shirazman!!

If she withdraws 4% from her residual ARF (i.e. 4% of €15k), what PRSI did you suggest to me that she'd have to pay??!!
 

Shirazman

Registered User
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476
Hey Shirazman!!

If she withdraws 4% from her residual ARF (i.e. 4% of €15k), what PRSI did you suggest to me that she'd have to pay??!!
Due to her other income, she'd be a Class S contributor!

If she starts an ARF soon she will achieve several years of S class PRSI contributions. These could qualify her for the over 65's payment. She would need to make monthly withdrawals from the ARF to get 52 S contributions per year. Without the S class ccontributions she would need to get a job for 13 weeks at age 63 to qualify assuming she is signing on for A class prsi credits.She should also try to make extra payments into her PRSA if this is possible.

Sadly, she has no prospect of reaching the minimum eligibility criterion of 520 paid reckonable PRSI contributions.

(But if she had, then as you say, that would be a reason to consider an ARF.)
 

bstop

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306
She does not need 520 paid contributions to qualify for the Payment for 65 year olds. 3 years of S class contributions would allow her to qualify. She could get almost 6 years of S class contributions if she started an ARF as soon as possible. If she already has over 4 years of contributions she could get the 520 needed. If she has any B or D class contributions she could qualify for a mixed class pension.
 

Shirazman

Registered User
Messages
476
Thanks for that helpful information. We had no idea that someone receiving a teaching pension would be eligible for the Payment for 65 year olds. It is certainly a benefit worth considering. Since resigning her teaching job in 2006 she hasn't had any involvement with the PRSI system. But prior to this, she had accumulated about 15 years of Class D contributions. So the mixed pension is certainly a possibility.
 

bstop

Registered User
Messages
306
You're welcome. Yes she could get a mixed class pension as she only needs 260 Paid contributions which could be S class. It's called a Pro Rata pension. She should check her PRSI contributions record as she might have some A class contributions from her early employment years. The timing of the scrapping of AMRF's could be greatly to her advantage. I also paid D class PRSI for my working life and only discovered the advantages of getting S class PRSI when I started drawing down my ARF.
 

bstop

Registered User
Messages
306
I forgot to mention that after about 3 years of paid contributions your wife would also qualify for PRSI treatment benefits.
 

bstop

Registered User
Messages
306
Thanks for that helpful information. We had no idea that someone receiving a teaching pension would be eligible for the Payment for 65 year olds. It is certainly a benefit worth considering. Since resigning her teaching job in 2006 she hasn't had any involvement with the PRSI system. But prior to this, she had accumulated about 15 years of Class D contributions. So the mixed pension is certainly a possibility.

Forget all that financial advise I gave you Shirazman. Your wife would be much better off keeping her PRSA and when she is 75 she should cash it in and invest all her money in tax free state savings.
 

Shirazman

Registered User
Messages
476
Forget all that financial advise I gave you Shirazman. Your wife would be much better off keeping her PRSA and when she is 75 she should cash it in and invest all her money in tax free state savings.

Thanks; however being sensible people, we reckon that irrespective of your beloved 'tax grab' the appeal of gaining five additional years' of reckonable PRSI contributions makes the switch from PRSA to ARF a complete no-brainer. So that's what we're doing to do.
 
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Shirazman

Registered User
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476
I pity that poor farmer.

Don't worry, he got top dollar from me when I purchased his field! (Hopefully no one advised him to invest it an AMRF, because if he did, the 'tax grab' would have ruined him! )
 
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bstop

Registered User
Messages
306
If your prophecy that Sinn Fein gets back into power and reduces the pension age back to 65 comes true, then your wife will not get anything near the 10816 euro payment. She will only qualify for a reduced pension.
I reckon I will be voting Sinn Fein.
Give my best regards to the boss.
 
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