62 yr old prsa/pension?

Hi,
I've searched the threads for a similar question but had no luck, so I apologise if something similar has already been covered.

My Dad is 62 and has never had a pension. He will be receiving his ssia next month. I presume that there would be no point in him starting a pension at this stage?

I think a better option would be to setup a prsa and to put some of his ssia into it and get the bonus top up from the government. Is this the best option?

Thanks,
Ellen

Hi Ellen,

It is a interesting situation to be in... I am not an expert in the field but will try to offer some advice.

I you dad is intending to use the money from his SSIA to perhaps purchase an annuity... then the free money on offer from the goverment can only add to the amount that he will have to purchase the annuity.

Obviousy the funds in the PRSA will not have much time to grow, however it will grow tax free. So if there are no other "safe" investment opportunities on the horizon i would not be a bad plan add the money to a PRSA.

Hope it helps and little,
Regards.

I dont know if PRSAs have the same rules applied as has my personal pension, but if they do, I would not put my SSIA money into one - no way!

If you have money in a pension you will only be able to get 25% of the sum as cash on maturity. The rest, by law, has to go into an annuity. In my case €20,000 buys me a useless €1100 per year. About enough for bus fares!! Anything less than approximately €200,000 in an annuity is not really worth considering.

My capital is tied up in a useless fund. Even if I was dying and needed to pay for a life saving operation, I could not get my hands on the cash. Then if I died, my wife would get nothing.

I would say in my experience stay clear of pensions. Put the money in a saving scheme or investment, at least you can get your hands on it if you need it!

Ellen,

It's a bit of a quandry as there are so many variables to each investors circumstances. I suppose it all boils down to as to whether your father will need access to these funds at a later date.

Some mature investors are taking the incentive knowing that they are unlikely to ever have any dependency on its value. They are taking the incentive with a view to leaving it sit until 75 and then putting it in to an ARF, ultimately forming part of their estate.

Some, that don't have pensions, are placing the money in the pension incentive with a view to taking the tax free cash of 25% at a later date and 'investing' the balance in an AMRF/ARF.

There are also those, that don't have pensions, that will avail of the Trivial Pension Rules. Because a fund is under €20K, the pension holder can take the 25% and then take the balance as a once off pension, subject to tax and PRSI. This is provided that the total of all funds available for pension benefits is less than €15K.

I suppose he should just consider all the options and go with what suits his circumstances and the tax implications of each option.

If we are talking about the SSIA, it would probably have a value of up to 30,000 ? Now if your father does not currently have any pension in place i take it he will reitire and take the state pension and his normal retirement age ?

This would provide an income of perhaps 10,000 PA

Now if he wants to purchase and income with his SSIA savings and does not need unrestricted access to his funds, he could look into the government scheme ... contribute funds to the scheme and avail of tax relief in the last few years at work ...

Upon retirement lets say his fund grows to approx 50,000 ... he can then use this to purchase an annuity and provide an additional income to supplement the state pension at retirement...

I dont imagine an AMRF/ARF since he would require and steady pension of just under 13,000 before he considers this option ... and the pension fund would not be large enough to go this route IMO

A person can go the AMRF route when they have €0 income.

The AMRF is compulsory for people who have less than €12.6k income - the ARF is the one that requires a guaranteed income.

Also - the max contribution to get government tax credit from SSIA to PRSA of 1/3rd is a contribution of €7,500.

I think poster's father should consider it.

Yes very true about the AMRF CapitalCCC, the first 67,500 must go their, but given the circumstances of the above situation it may be a good idea to go the annuity route??

I take it that the amount that will come from the SSIA will certainly not be 'risk capital' and the more secure option should be chosen!!!

This is why the 7,500 on offer from the government would seem like a very attractive option?

Since I would have many questions myself regarding my own personal fledgling plan ... I would really like if someone could critique it for me?

Thank you all for your replies, it certainly gives some food for thought.

Regards,
Ellen

Ellen, is your father working?

It wouldnt, on the face of it, appear to make a lot of sense to take the proceeds of the SSIA, which on maturity will be 'net of tax' and consider investing the funds in a PRSA which will be liable to tax on the draw down, even including the top up from the overnment.

If your father is working it may make some financial sense to make the SSIA/PRSA contribution but probably only if he paying tax at the 20% rate, if he is paying tax at the 42% rate it will generally make more sense to make a personal contribution to a PRSA or an employer sponsored scheme and claim the tax relief back on his income rather than via the SSIA bonus route.

So confused about this €12,700 rule. I take it that it includes ur state pension but if ur retired how would you have any other income. Is it it true that if the fund (75% part) is less than certain amt they would allow you to draw it down and just pay tax on it?

The €12,700 rule is for people that have a "main" pension to provide the €12,700 and want to use their AVC fund to go down the ARF route.

It seems that if the fund is less than €15k you may be able to encash it entirely (paying tax on the "75%").

Ellen, as Murp says, the factor that determines whether your father should start a pension or not is does he have any earnings?

You can only pay into a pension from earned income.

My father is 60, is in an occupational pension and an AVC, and did start a PRSA at age 60. It will last 2 years approx.

Dizzybride, you may have other pension income to bring you over the 12700 threshold. My father will earn 35k in retirement, and so can place his AVC funds into an ARF.