# PRSA or Company Pension



## Happy Girl (24 May 2007)

I have looked at previous threads but cannot find specific answer to this question. 
If my employer agrees to contribute to either a PRSA (which I would take out) or a company pension scheme (which they would take out) which would be the best option to go with. PRSA vs Company Pension. They say they will contribute to either.


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## ClubMan (24 May 2007)

As far as I know with a company (occupational) scheme the age related tax/_PRSI _relief limit applies only to your personal and _AVC _contributions and the employer can contribute above that (within certain limits) without any _BIK_/tax implications. With a _PRSA _the total employer and employee contributions must be at or below the tax relief limit to qualify for full relief. Obviously you need to compare the charges, investment and customer service options with different offerings. Contributions made via payroll to either type of scheme qualify for tax and _PRSI _relief at source rather than having to claim these separately. Service in an occupational scheme can be transferred into a future employer scheme possibly expediting the securing of benefits rather than having to serve the new scheme's vesting period first.


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## Fanny (24 May 2007)

Hi Happy Girl, 
I took out an occupational pension six years ago and it sounded like it was quite flexible and could be taken over by a future employer. However, none of the two companies I worked for after that had such a scheme, and I have now frozen the 7.000 EUR and started a PRSA. Many employers now seem to realize that PRSAs are more flexible and don't offer occupational pensions anymore. However the employers PRSA schemes often take a 5% charge plus management fee to invest you money into a PRSA, so it is important to see how much your employers contribution would be, as some of it will be eaten away by the fees of the company PRSA. If you have the choice opt for a 0%/1% PRSA, but I am not sure if an employer would contribute to it (mine does not, only to the company PRSA!) Many of us end up with multiple mini-pensions at the end. I have now opened up my third pension, after occupational pension (frozen), company PRSA (frozen), a 0%/1% PRSA. All of these are available with the same funds e.g. Irish Life consensus. All underlie different terms & conditions and are not near as flexible as it appears to the consumer. While it is not necessarily a disadvantage to end up with three pensions, I believe that the confusion keeps people from taking out a pension and it could become a bureaucratic nightmare unless you manage to keep yourself organized. 
Fanny


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## ClubMan (24 May 2007)

There is nothing necessarily wrong with having multiple pensions. However it can mean some additional administrative hassle. I also have a variety of pension funds for various reasons with only one ever actively taking contributions at any one time.


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## Azriel (24 May 2007)

A PRSA allows access to the Approved Retirement Fund regime, whereas an Occupational Pension Scheme currently does not.


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## Happy Girl (30 May 2007)

Can anybody confirm or negate the following. Basically my understanding (for what it's worth) is that one of the differences between PRSA and Occupational pension is that in simplistic terms you (or your spouse/estate) are guaranteed the entire PRSA fund until such times as the entire fund runs out. With the occupational pension basically they pay you for as long as you live - if you live a long time you beneift and they take the loss if there is not enough in the kitty for pension/if you don't they benefit to the tune of what is left in the fund. Am I correct on this.


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## ClubMan (30 May 2007)

I don't think so. With any pension you generally have the option of buying an annuity with most or all of the matured pension fund. It is the annuity which pays you a lifetime income and not the actual pension. I don't know if there is any situation in which you can exhaust the pension funds saved and run out of retirement income (other than with the up to 25% tax free lump sum that you can opt for).


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## Protocol (30 May 2007)

Happy Girl,

you may be confusing a defined contribution funded PRSA with a defined benefit occupational pension.

Yes, if you and/or your employer pays into a PRSA, then this fund grows until you retire, at which point you use the fund to buy an annual income, or you invest it in an ARF, and drawdown an income.

But, yes, the size of the income you get (via annuity and/or ARF drawdown) will have depended on the size of the contributions and the growth of the fund over the years.

Whereas, with a defined benefit occupational pension, the employee does not face the same risk, and you will be paid a pension until you die.  There may or may not be a fund.  The employer underwrites the costs.


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## LDFerguson (30 May 2007)

I think Happy Girl may be referring to the difference between an Approved Retirement Fund (ARF) and an annuity (guaranteed pension for life).  

These are products that can be purchased at retirement.  If an employee (not a director) accumulates a fund in an Occupational Pension Scheme, the fund can only be used to obtain a tax-free lump sum and an annuity with the balance.  

If the fund is accumulated in a PRSA (or through AVCs) the option is tax-free lump sum and annuity or ARF.  The ARF offers more control of income withdrawn and any remaining fund on death can be passed on to one's estate.  

Liam D. Ferguson
www.ferga.com


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