Personal Retirement Savings Account (PRSA)

Voluntary insurance

• Anyone can join a PRSA regardless of their employment or other status.
• A PRSA is a scheme which employers must provide mandatorily to all ‘excluded employees’ from private sector occupational pension schemes.¹ For these employees, there must be the option of a PRSA available in their workplace.
• There are two types of PRSA: standard and non-standard. The main differences between the two are related to a cap in charges for standard PRSAs, and the types of investment are restricted in standard PRSAs.

General finances

• It is financed through contributions into a fund maintained by a PRSA provider.

Contribution payments

• Contributions are paid by the employee; no employer contributions are required.
• Contribution rates are freely chosen but PRSA providers cannot impose a minimum contribution greater than: EUR 300 per annum, EUR 10 per electronic transaction, or EUR 50 per transaction for other methods of payment.

State support & incentivising strategies

• Tax relief is available on employee contributions and is granted on earnings subject to age-related caps of between 15% to 40% of earnings. Earnings are subject to a further limit of EUR 115,000. The portion of earnings that an employee can claim tax relief on is determined by their age². This is referred to as the ‘age-related earnings percentage limits’. Persons under 30 will get tax relief on contributions of up to 15% of their earnings. This increases with age e.g. 30-39: 20%; 40-49: 25%; 50-54: 30%; 55-59: 35% and 60 or over: 40%.

• Three main bodies are involved in the administration of PRSA products.
• The Pensions Authority authorises PRSA providers, approves PRSA products, supervises activities of PRSA providers and monitors compliance with legislation.
• The Revenue Commissioners approve PRSA products in conjunction with the Pensions Authority.
• The Central Bank of Ireland supervises PRSA providers and sales process of approved PRSA products.

• The terms of the individual PRSA product will determine the qualifying conditions for accessing retirement benefits, but there are some general conditions common to all PRSA products.
• PRSA products are generally more flexible than other standard pensions. Generally, retirement benefits can be taken between the ages of 60 and 75 years. Exceptions for earlier access to retirement benefits can be made where the employee, for example, works in a field where retirement normally occurs before the age of 60 years e.g. sport persons.
• A PRSA certificate and contract, a birth certificate and a Personal Public Service Number will be needed to access a PRSA.
• Early retirement is normally possible from age 50. Where ill health or disability arises, many pension arrangements allow retirement at any age up to age 75.

Pension payments

• As a defined contribution scheme, a PRSA fund will consist of the total contributions paid and the investment return earned on those contributions (less the PRSA provider’s charges).
• Benefits consist of both a retirement lump sum and a remainder which can be used in a variety of ways.
• The lump sum available on retirement may be up to 25% of the PRSA fund value.
• The remainder of the PRSA fund can be used to buy an annuity, or left in the PRSA fund for withdrawal at any time, subject to Revenue requirements (this is called a vested PRSA), or transferred to an approved retirement fund (ARF), subject to Revenue requirements. Where an ARF or time-to-time withdrawal are chosen, a minimum retirement income requirement is imposed. Persons under 75 are required to demonstrate a guaranteed income of EUR 12,700 per annum. This amount can include state pensions. Where this minimum threshold is not met, the person must either transfer EUR 63,500 of their PRSA fund to an Approved Minimum Retirement Fund (AMRF), or purchase an annuity which will bring up the level of guaranteed income to the minimum amount.
• If retirement benefits are not taken before the 75^th birthday the PRSA will automatically become a vested PRSA. An individual has 30 days from their 75^th birthday to fill in a benefit crystallisation event (BCE) certificate, or else income tax at the higher rate (40% in 2021) will be deducted from the fund and paid to the Revenue Commissioners. From age 75 they will have no access to their vested PRSA.

Taxation and social security contributions

• Pension lump sums under EUR 200,000 are tax-free. The next EUR 300,000 of pension lump sum taken from all pension arrangements since 07/12/2005 is taxable at the standard rate of income tax (20% in 2021). Any lump sum over the EUR 500,000 limit will have Universal Social Charge deducted and will be taxed at the higher rate (40% in 2021). There is also a cap on the maximum value of retirement benefits that any individual can build up from 07/12/2005 onwards. This is called the Standard Fund Threshold (SFT) and is EUR 2 million.