What’s the benefit of a PRSA AVC??

[landlord]

Question on PRSA AVCs…. apologies if this is a stupid question…

Tax on income for most high earners at the moment is 52% made up of income tax, USC, and PRSI. Let’s just say, for most high earners, tax on pension income at retirement is a similar rate, although I’m hoping it’s slightly lower.
Let’s say an employee has 2 million in a company pension scheme, and that is currently the limit. (negotiations ongoing to try to increase this).

If over a few years you invest €200,000 in a PRSA AVC and claim 40% (€80,000) back.
For simplicity, let’s say the PRSA AVC doesn’t go up in value. At retirement, you take the €200,000 back tax free.
This leaves your original 2 million company pension intact. However since you have not drawn from this 2 million to fund the €200,000 tax free lump sum, have you not pushed another €200,000 into the 52% income tax bracket and if so does that not negate the benefit of the PRSA AVC in the first place?

• The Entry: You only got 40% relief (Income Tax only—you do not get USC or PRSI relief on pension contributions in Ireland).
• The Exit: You suffer a 52% hit on drawdown via an Approved Retirement Fund (ARF) or annuity.
You essentially traded a 40% tax saving today for a 52% tax liability in the future.

 

[Robovac rider]

You are zero rated for Prsi on annuities.

After you claim your COAP or reach age 70, you are zero rated for Prsi on ARFs.

The major advantage of having an AVC PRSA is the tax free build up of investment gains.

For this reason you should maximise the risk level of the AVC PRSA funds.

Convert your AVC PRSA into an ARF and continue to use this to gain more tax free investment gains after you take benefits from your company scheme.

With your 2 million company scheme you can easily afford to take on a high risk strategy for your AVC PRSA.