# PRSA or AVC



## Mikefromcork (23 Jun 2021)

Hi All
I recently joined a public body. I met with a cornmarket rep and he adviced on setting up an avc with them. Prior to this I had a PRSA with Zurich. 
I have been told that payroll will generally facilitate any payments. 
I am wondering which I should go with or does an AVC differ from a PRSA. 
best wishes 
Michael


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## GSheehy (25 Jun 2021)

Payroll will facilitate payments if you buy the product via cornmarket. But, you can simply make the tax relief adjustment yourself via the Revenue 'My Account' if you didn't want to buy from cornmarket.

There's an Occupational Pension AVC Scheme and a PRSA AVC.

They both serve the same purpose but there's more transparency of costs/charges with the AVC PRSA. You'd probably have a greater fund choice with the PRSA and, to the best of my knowledge, you'd have to do the OP PRSA with Irish Life.

There is no disclosure of commissions requirement with an occupational pension AVC scheme.

Gerard

www.prsa.ie


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## Jonocon12345 (28 Jun 2021)

Hi. I am not sure if I am on the right thread. I am 50 and don't have a pension. I do own property and am wondering is it possible to transfer one into a pension and gain the benefits of tax free income when I retire? Thanks


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## Protocol (28 Jun 2021)

Pension income is not tax free.

Pension incomes are taxed like any other income.


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## Protocol (28 Jun 2021)

Pension lump sums are tax free, up to a limit.


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## Conan (28 Jun 2021)

Jonocon12345 said:


> Hi. I am not sure if I am on the right thread. I am 50 and don't have a pension. I do own property and am wondering is it possible to transfer one into a pension and gain the benefits of tax free income when I retire? Thanks


No. Any property purchase must be "arms length". But in any event, the facility to purchase property as a pension scheme asset is now very limited (mainly limited to a PRSA).


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## Jonocon12345 (29 Jun 2021)

Conan said:


> No. Any property purchase must be "arms length". But in any event, the facility to purchase property as a pension scheme asset is now very limited (mainly limited to a PRSA).


Hi, thanks for reply. I don't have a PRSA but is it possible to set one up and 'invest' the property in it?


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## Conan (29 Jun 2021)

No. Any property purchase must be "arms length". The pension fund cannot buy a property you already own.


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## Marc (29 Jun 2021)

Mikefromcork said:


> Hi All
> I recently joined a public body. I met with a cornmarket rep and he adviced on setting up an avc with them. Prior to this I had a PRSA with Zurich.
> I have been told that payroll will generally facilitate any payments.
> I am wondering which I should go with or does an AVC differ from a PRSA.
> ...



Its a very difficult question to answer because costs are not easily comparable.

Generally speaking you will always have more investment choice with a PRSA AVC than from the in house AVC options.

But this is not necessarily a good thing especially if you make poor investment choices (like trying to put rental property into a pension for example)

Its easy to find examples of investments which have provided higher returns in the past  here are two of the funds in my pension compared to an Irish Life Global Index tracker for example











If I could reliably obtain 1%pa above the market then yes it would always be worth setting up a PRSA AVC but its hard to do this consistently and most people fail miserably.

Our rule of thumb is that if you arrange a PRSA AVC with a life insurance company then you have essentially exactly the same fund choices as your in-house AVC provider and there is really nothing to be gained by setting up an insurance company scheme when the main scheme AVCs will almost certainly be administered by an insurance company.

If you establish a whole of market scheme and get competent investment advice then yes, you might be able to eek out a better return but there are no guarantees that you will

*What is the maximum pension contribution you can make?*

This is a regular trick question of mine at financial adviser conferences and you would be amazed how many people get it wrong.

There is no maximum contribution, just a maximum contribution which qualifies for tax relief and a maximum sensible contribution based on the Revenue maximum funding rules

An AVC plan forms part of the main Scheme and, as such, the Trustee of the main Scheme will monitor for possible over-funding (overpayment). This position may occur if your personal account provides a pension that would bring you over the maximum pension limit.

A basic maximum accrual rate of one-sixtieth of final remuneration for each year's service is approvable for any period of service of 40 years or less (a pension on this basis is commonly described as a pension of N/60ths).

The calculation of final remuneration is the average of the total emoluments for any three or more consecutive years ending not earlier than ten years before the relevant retirement date.

Normally the retirement benefits which are payable under the rules of your main company pension plan are lower than the maximum benefits which are permitted by the Revenue Commissioners.

Therefore, most people have scope to pay AVCs to increase their retirement benefits. For example, some of your earnings may not be included in the calculation of the pension amount payable from your main plan - e.g. overtime, bonuses, commissions or car allowance or you may have entered your pension plan at an age when you are not expected to receive full pension benefits from your company’s main pension plan when you retire.

If you are a member of an occupational pension scheme in the private or public sector, you can make additional voluntary contributions as an AVC to the main scheme, in a defined benefit scheme you may be able to purchase “added years” or a notional service pension or you could contribute to a PRSA.

If you make additional voluntary contributions to a PRSA, then your benefits will be subject to the rules of the scheme and the Revenue limits applying to occupational pension schemes.

You should note however that there are now maximum fund thresholds in place. A fund threshold is the maximum fund that a person is permitted to have for providing retirement benefits. If your fund is greater than the fund threshold then the amount in excess of the threshold will be subject to income tax at your marginal rate when you retire. The maximum fund threshold is €2.0 Million Euro.

*From the Revenue pension manual*


Tax relief in respect of contributions in any one tax year is subject to the limits for employee contributions, as detailed in Chapter 3.

Relief for employer contributions is subject to the rules in Chapter 4 .

The limits on Tax Relieved Pension Funds also apply, please see Chapter 25.

Care must be taken to ensure that overfunding does not occur, as surplus funds may have to be refunded *to the employer* and taxed as a trading receipt.

Details of maximum retirement benefits are contained in Chapter 6.

Additional voluntary contributions (AVCs) can be made if the total of employer contributions and employee normal contributions do not exceed the above limits and the total employee contribution limits as outlined in Chapter 3.

So in conclusion there are two clear risks here.

1) Maximum benefits that are available from the occupational scheme need to be assessed against the best 3 years in the previous 10 years

2) Pension benefits in excess of the SFT currently €2m suffer an effective marginal rate of tax of over 70%

so care needs to be take not to overfund a pension via AVCs and in the worse case scenario an overfund goes back to the EMPLOYER. Not such a bad outcome if you own the company but a poor outcome for an employee.

BUT,

you are getting gross roll up free from personal taxes so all things being equal you will accumulate a larger fund than you would under an alternative personal investment option.

It is possible to prefund a PRSA AVC with a lump sum and to carry forward unused tax relief against future years income but great care must be taken not to overfund against maximum revenue benefits









						Maximum AVC Contributions - Everlake
					

There isn't a maximum contribution you can pay into your pension. Pay a lump sum to your pension now and carry forward the tax relief.




					globalwealth.ie
				






Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie


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## Murky18 (15 Jul 2021)

Hi All

just a quick one in relation to above, i have recently joined employer contribution scheme, both contribute 10%, i have scope to add another 10% with my age limits.  the annual fees are 1.5% .  should i do the avc with the occupational scheme or can i source another one myself.?

thanks


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## AJAM (15 Jul 2021)

A 1.5% Annual Management Charge is very high. In a PRSA the legal maximum annual fee is 1%.
I would not  accept anything higher than 0.75%.
So possibly the best thing to do, is make sure you are getting the max employer contribution.
Then put any additional in a PRSA with an annual fee of 0.75% or less.


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## Marc (15 Jul 2021)

There are no disclosure regulations that apply to Irish Pensions.

An annual management charge is NOT the total cost of an Irish Pension. 

Its very possible that a contract quoting 1.5% has half the actual charges of a contract quoting 0.75%


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## SGWidow (16 Oct 2021)

Marc said:


> If you make additional voluntary contributions to a PRSA, then your benefits will be subject to the rules of the scheme and the Revenue limits applying to occupational pension schemes.



I was speaking with my acountant this morning - the poor man says he has to work at least Saturdays during tax season. He asked me to check out something as it's not his area of expertise but he likes getting "comfort" on things........a "measure twice" man.

Under the Revenue Pensions Manual the Lump Sum for PRSA-AVCs is:

a tax-free retirement lump sum paid when PRSA assets are first made available
to the individual, which does not exceed 25% of the fund or, in the case of an
AVC PRSA, the amount that may be paid by way of lump sum under section
772(3)(f) TCA;


The Revenue limits applying to occupational pension schemes allow for an "uplited scale" whereas the TCA section quoted above just provides for the basic "3/80ths" lump sum. He said it would be prudent to see where it is documented that AVC PRSAs can use the "uplifted scale" - as a bare reading of the Revenue Manual and the quoted TCA section does not seem to support this?


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## SGWidow (16 Oct 2021)

I forgot to mention one other point my accountant queried, as follows - where are the rules written which sets out what happens if a single PRSA account was used for both AVCs and non-AVCs? His point being that such a scenario is also not covered by the quoted section of the Revenue manual above (and didn't appear to be covered by any other section either.)

[He wasn't saying that this stuff ain't set out anywhere - he was just wondering where!]


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## bstop (16 Oct 2021)

Just make your yearly contributions to your AVC'S or PRSA. When you retire the providing company will calculate the maximum tax free lump sum available. In my experience Zurich were the most skilled in this regard.


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## SGWidow (17 Oct 2021)

That's certainly one approach, bstop

Personally, when going on a journey, I like to know the destination!!


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## jpd (17 Oct 2021)

Unfortunately, with pensions it is impossible to know the destination as there are too many random variables to take into account - lifetime, government rules, investment returns to name just a few


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## NotMyRealName (17 Oct 2021)

Marc said:


> It is possible to prefund a PRSA AVC with a lump sum and to carry forward unused tax relief against future years income but great care must be taken not to overfund against maximum revenue benefits



Marc,
Does this mean that ,say a student, could pre-fund a PRSA for a number of years and then claim the relief when they enter the world of employment?.......and, if so,how is max funding calculated?


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## Marc (17 Oct 2021)

Yes that’s exactly what we do.

We have several families as clients where we have established a family partnership and the parents have invested substantial sums in the children’s names.

Which is great for CAT planning but it does mean that they are generally using up their allowances and exemptions with dividend income.

This is fine for planning purposes but you should see the look on an 18 year olds face when they earn €5 grand in a summer job and get stiffed for 52% tax!

So joined up thinking says lash in a lump sum to a PRSA as soon as possible. 18 is earliest possible in Ireland and we really like using the €16k exemption from granny as it’s a proper intergenerational skip  (it’s from birth in the U.K. and I just met the first grandchild of an intergenerational plan recently where her gran paid into a U.K. pension when she was a child and now in her 30s she’s set for life)

It’s all here









						I don't believe in Pensions - Everlake
					

Why everyone should start paying into a pension as soon as they can




					globalwealth.ie
				




anyway I digress

So the maximum funding becomes relevant when they join an occupational scheme. The trustee needs to know that the PRSA is in existence and it is designated as a PRSA avc.

They just keep an eye on the revenue maximum pension limits to avoid overfunding.









						Maximum AVC Contributions - Everlake
					

There isn't a maximum contribution you can pay into your pension. Pay a lump sum to your pension now and carry forward the tax relief.




					globalwealth.ie


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## MugsGame (17 Oct 2021)

> Which is great for CAT planning but it does mean that they are generally using up their allowances and exemptions with dividend income.
> 
> This is fine for planning purposes but you should see the look on an 18 year olds face when they earn €5 grand in a summer job and get stiffed for 52% tax!



But surely the exact opposite happens if the child's investment is made through the pension vehicle? (not only does the investment grow tax free, but the historical pension contributions may reduce the income tax due on the summer job).

Is there no requirement that the pension contribution be made from earned income in order to qualify for tax relief? Or is it sufficient that the tax relief itself be later applied against earned income?


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## Steven Barrett (18 Oct 2021)

SGWidow said:


> I forgot to mention one other point my accountant queried, as follows - *where are the rules written which sets out what happens if a single PRSA account was used for both AVCs and non-AVCs?* His point being that such a scenario is also not covered by the quoted section of the Revenue manual above (and didn't appear to be covered by any other section either.)
> 
> [He wasn't saying that this stuff ain't set out anywhere - he was just wondering where!]


A life company sets up a PRSA with umbrella policy number 1. You are in non pensionable employment and make a pension contribution so it goes into PRSA 1/a. You then join a pension scheme and want to make an AVC payment. So it goes into PRSA 1/b, which is a PRSA avc plan. Or else the life company sets up two completely different policies, a PRSA and a PRSA AVC plan. 

The one stop policy that you can bring everywhere was a lie. 



bstop said:


> Just make your yearly contributions to your AVC'S or PRSA. When you retire the providing company will calculate the maximum tax free lump sum available. In my experience Zurich were the most skilled in this regard.


If you are in pensionable employment, you must make pension contributions into an AVC plan or a PRSA AVC plan. If you are a member of a scheme and you make contributions to a personal plan, you cannot claim tax relief on the contributions. it is very important you make the contributions into the correct pension. 


Steven
www.bluewaterfp.ie


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## SGWidow (18 Oct 2021)

@Steven Barrett 

Thanks Steven for that. That's interesting although how an PRSA provider could manage to track PRSA contributions versus PRSA AVCs over an extended career with multiple switches between pensionable and non-pensionable employment combined with multiple fund switches is beyond me!

I suppose my main query is, as set out, in #13.

This query isn't even for me - it's for a pal of mine. As things stand, she won't get the rev max lump sum (as she worked part-time, etc.). She would prefer to do an AVC PRSA rather than the Cornmarket AVC because of the charges Cornmarket levy. However, from my accountant's reading of the Revenue Manual and the quoted section of the TCA, it seems that lump sums from PRSA AVCs are restricted to 3/80ths and not the uplifted scale.

All the marketing material out there suggests that one can use the uplited scale - i.e. that there is no difference in the application of a PRSA AVC only fund compared with an AVC only fund at retirement. Otherwise put, my accountant is missing something which, of course, is possible and which he, himself, accepts.

In essence, 

(a) Can PRSA AVCs be used to bring someone's tax free lump sum up to rev max using the "uplifted scale"? 

(b) If (a) is indeed possible, why does the quoted section of the TCA not apply?


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## Steven Barrett (18 Oct 2021)

SGWidow said:


> @Steven Barrett
> 
> Thanks Steven for that. That's interesting although how an PRSA provider could manage to track PRSA contributions versus PRSA AVCs over an extended career with multiple switches between pensionable and non-pensionable employment combined with multiple fund switches is beyond me!


It's not that difficult. When the money is paid in, they ask. 


For someone in a DB pension, their lump sum is calculated on the final salary method. So any AVC payments are also used on that method and the 25% tax free lump sum is not available. 

Under DC arrangements, if you use the final salary method, you must purchase an annuity with the remainder. The 25% option is also available and an ARF must be used with the remainder. 


Steven
www.bluewaterfp.ie


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## Zeus2020 (18 Oct 2021)

Hi Stephen I’m db scheme so what happens to the remainder of your money in prsa/ prsa avc  after the lump sum is taken as I have both funds


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## Conan (18 Oct 2021)

If you have a PRSA AVC (or a simple AVC fund), you should firstly use it to top up your Lump Sum from the Occupational Scheme to the Revenue max.
If there is funds remaining, then you have 3 options:
1. Invest the balance into an ARF
2. Buy an Annuity
3. Take it as taxable income in the year you retire

Using an AVC/ PRSA AVC  to maximise your scheme lump sum (particularly in a DB Scheme) is a very tax effective investment strategy. Ideally do not retire leaving potential (tax free) lump sum money on the table behind you.


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## SGWidow (18 Oct 2021)

Thanks Conan,

The narrative generally is that one can use a PRSA AVC to fund the gap between the lump sum scheme benefit and Rev max.

I have quoted my accountant's concerns re this in #13 and the specific questions to Steven in #22 which remain unanswered.

For convenience, I shall repeat here my questions to Steven:

(a) Can PRSA AVCs be used to bring someone's tax free lump sum up to rev max using the "uplifted scale"?

(b) If (a) is indeed possible, why does the quoted section of the TCA not apply?


The relevant sections in (b) are:

Under the Revenue Pensions Manual the Lump Sum for PRSA-AVCs is:

a tax-free retirement lump sum paid when PRSA assets are first made available
to the individual, which does not exceed 25% of the fund or, in the case of an
AVC PRSA, the amount that may be paid by way of lump sum under section
772(3)(f) TCA;

Section 772(3)(f) just provides for lump sums based on the "3/80ths" formula - i.e. not the uplifted scale. 

Conan - we have engaged on this on another thread also. I hope that your position is correct - it's just that it seems in direct conflict with the legislation quoted. All I'm looking for is an explanation why 772(3)(f) can be disregarded.


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## Conan (18 Oct 2021)

You need to distinguish between DB Schemes and D.C. Schemes (D.C. Occupational, Personal Pensions and PRSA’s). In a typical DB scheme, rules may  state that the Lump Sum is defined as 3/80ths of final Salary for each year of service (typical Public Service). However under Revenue rules, the uplifted scale can apply to any with over 10 years service (where at least 20 years service can get you the max of 120/80ths -150% of Final Salary). 
So if you have short service (but say more than 20 years), the Scheme rules may not entitle you to the max Lump Sum. But Revenue will allow a lump sum of up to 150%. That’s where AVC (or PRSA AVC) can bridge the shortfall. This is fully explained in the Revenue Pensions Manual ( see section on Retirement Lump Sum).
If however your funds are entirely D.C. then you are only entitled to take 25% of the fund(s) value as a Lump Sum.


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## Zeus2020 (18 Oct 2021)

Hi Conan thank you for reply in option3…  take it as  taxable income on the year you retire I pay no tax at present as I only work part time and fall below 20% treshhold with tax credits so can I take it as income and pay no tax or very little tax…..is that an option for me ..?.


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## Conan (18 Oct 2021)

If your total income in the year (including any residual AVC fund) is below the tax threshold then you are correct. Even if you slightly exceed the 20% threshold,  the tax hit will be small.


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## SGWidow (18 Oct 2021)

Conan,

You describe DC schemes as


Conan said:


> (D.C. Occupational, Personal Pensions and PRSA’s).



and then go on to say



Conan said:


> If however your funds are entirely D.C. then you are only entitled to take 25% of the fund(s) value as a Lump Sum.



This is flat wrong. Members of occupational DC plans can take tax free lump sums based on salary and service. I sincerely hope that it was not your intention to say this.


Also, I just want to put on record that my specific questions regarding the uplifted scale were not answered. I'll not be seeking this information for a fourth time!


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## Conan (18 Oct 2021)

SG
In a DC scheme you CAN go the salary and service basis,  BUT if you do you must buy an Annuity with the balance (no ARF option). We have a Finance Bill due shortly,  and there is speculation that some changes may be made, such as abolition of AMRFs, abolition of 15 year rule for transfers to PRSAs etc.

As for S772(3)(f), you are ignoring the Revenue Pensions Manual which more specifically deals with the rules governing Pension Schemes. This allows for an "uplifted scale" - see Chapter 7 of Manual.


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## SGWidow (18 Oct 2021)

Ah come on now, Conan - you're having a laugh!

You're the one that said that for DC plans you are only entitled to take 25% of the fund. [Your clarification is an improvement on your previous post but still innaccurate or, at best, misleading/incomplete. I'm not going to waste more time explaining this and I don't want to go off on that tangent!]



Conan said:


> As for S772(3)(f), you are ignoring the Revenue Pensions Manual......



Are you having more laughs?! This query emanated from reading the RELEVANT SECTION of the Pensions Manual!!

The reference to s772(3)(f) comes from Chapter 24, i.e. the chapter expressly dealing with PRSAs.

I will try rephrase my central questions. Once more into the breach and all that.

1. Do you understand what chapter 24 of the Revenue Manual is saying about lump sum benefits upon retirement for PRSA AVCs?

2. What do you think s772(3)(f) means?


Further, if you look up - Notes for Guidance, Taxes Consolidation Act 1997, Finance Act 2020 edition
Part 30 Occupational Pension Schemes, Retirement Annuities, Purchased Life Annuities and Certain Pensions - the explanation of the amount that can be taken tax free from a PRSA AVC is consistent with my accountant's interpretation.


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## Conan (18 Oct 2021)

SG,
Since you seem to know so much (or your Accountant knows so much), I don’t think you need any more guidance from me.


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## SGWidow (18 Oct 2021)

Conan,

Thanks for your, ahem, guidance!

I still live in the hope that someone out there in AAM land will, at least, understand my/my accountant's perfectly legtimate questions.

All I will say is that the answers to date on this thread have not been inspiring!


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## Zeus2020 (19 Oct 2021)

Conan said:


> If your total income in the year (including any residual AVC fund) is below the tax threshold then you are correct. Even if you slightly exceed the 20% threshold,  the tax hit will be small.


Thanks Conan for reply ..made my day as cornmarket told me a few years that investing in prsa was a waste of time ignored this advice ..only stopped because I stopped paying tax


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## elacsaplau (7 Nov 2021)

This is a very interesting thread.

I must admit that on the face of it, PRSA AVCs should not be used if targeting the Rev Max Lump Sum. 

Obviously, this is not what the industry is doing, so it would be interesting to get an explanation for this?


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