Apologies for the simple PRSA question

[MHarbour]

I'm sorry for the very simple PRSA question. I am relatively poor at understanding the financial jargon, and just need to have things explained to me in laymans language. I have read the posts on here (and other sites) over the past month to try to get up to speed. I suppose I am just looking for some affirmation from the brains trust on the site that what I am planning to do is the best way of doing things, and if I have got the information correct.

To set up a standard PRSA,

- I use a broker with the least contribution rates, and lowest annual management charges to set up the PRSA.
- After setting up the PRSA, for an amount that I decide, the company that I get the PRSA with, sends me a form that allows me to claim tax back.
- I fill this form out and sent to the revenue.
- Does my employer get informed that I have set up a PRSA, even if they are not contributing to the PRSA???

The money comes out of my account every month (if its set up that way)

Is that it? Is there anything else that I should do? I am sorry for using this site for advise like this, the financial jargon gets me - even terms for relatively simple concepts take time for me to process. Thanks very much for your time reading this. Its greatly appreciated, as would any feedback.

 

[ClubMan]

- I use a broker with the least contribution rates, and lowest annual management charges to set up the PRSA.

Not necessarily. You don't have to use a broker and some providers will deal with you directly. However, in some cases, you may get a better deal through a broker than directly (odd and all as that may seem). Ultimately it makes sense to go whatever route minimises charges assuming that the funds on offer meet your needs.

- After setting up the PRSA, for an amount that I decide, the company that I get the PRSA with, sends me a form that allows me to claim tax back.

Yes - if you set up a PRSA then you get a PRSA1 certificate which you can use to claim tax back. If you take out a personal pension plan then you get a Retirement Annuity Contract which can be used for the same purposes. Note that you must claim PRSI relief separately.

- I fill this form out and sent to the revenue.

Yes - you can just write to Revenue explaining your pension arrangements and including a copy of the PRSA1 certificate. For regular contributions they will normally adjust your tax credits to grant you relief. For lump sum or irregular contributions they may just do a lump sum refund of tax.

- Does my employer get informed that I have set up a PRSA, even if they are not contributing to the PRSA???

No - if the pension is "standalone" and your employer does not provide any pension cover then they don't need to know as the arrangement is purely between you and your broker/pension provider.

The money comes out of my account every month (if its set up that way)

Yes - usually direct debit.

Is that it? Is there anything else that I should do?

I would recommend that you get independent, professional advice.

 

[MHarbour]

Thanks very nuch for clearing those things up ClubMan. Greatly appreciated.

 

[LDFerguson]

One point I would add to ClubMan's reply is that your employer is likely to be aware of your pension contribution, even though they may not be directly involved. In many cases, Revenue will grant you tax relief on an ongoing pension contribution by increasing your tax credits. Your employer automatically gets a copy of your tax credits certificate, which will have the additional tax credit for your pension contribution listed.

This might be relevant if you have a particular reason why you don't want your employer to know about your pension conribution.

Liam D. Ferguson
www.ferga.com

 

[aidan119]

Unless it has changed recently the Tax Credit Cert that employer receives is not actually a copy of the one the employee receives. It does not show the actual breakdown of the tax credits total. Only the total amount.
So employer will not know what is making up your tax credit.

 

[Rebelman]

Hi,
I hope that MHarbour does not think I am jumping in on their thread, but this question might be relevant to them also. I am currently looking to setup a PRSA - my company will not be contributing to it, but I would like to pay my annual bonus into the PRSA account. I am hoping to setup a PRSA account in the next couple of weeks and should get my bonus in July. Is it possible to put the entire bonus into the PRSA account and not have to pay tax on it? I have discussed this with my employer and they are happy to do it as long as it is possible and legal to do. Is there a limit to a lump sum payment into a PRSA account which can be tax free?

Thanks in advance.

 

[ClubMan]

Is it possible to put the entire bonus into the PRSA account and not have to pay tax on it?

If it is within your age related pension tax relief limit then you should get full tax and PRSI relief on it. If the pension contribution is made out of net pay then you need to claim these back yourself. If the contribution is made via payroll then you should get tax/PRSI relief at source. If you want to set the contribution against 2006 tax (once you make it before October 31st 2007) then you probably have to claim the reliefs yourself.

Is there a limit to a lump sum payment into a PRSA account which can be tax free?

Yes - see here for a summary.

These key posts might also be of interest to you:

October 31 - what does it mean for PAYE worker?
Claiming PRSI relief on standalone PRSA contribution
The cheapest PRSA?

 

[Rebelman]

Thanks for the info Clubman.

 

[LDFerguson]

It's also possible for your employer to pay your bonus directly into your PRSA as a separate issue from your salary, but this has implications in that your salary is not therefore being increased and so your maximum limit for tax relief is lower. If you're not close to your tax relief limit it can be a clean way of doing this.

 

[MHarbour]

Very sorry again for another simple follow up question, and it is something that may have been mentioned elsewhere but I cant find it.

I was contributing to a company pension (worth maybe 20K), can I transfer it into the PRSA when I am setting it up. Are their tax considerations to take into account? My new company doesnt have a pension scheme. (its what prompted the original question)

If it is possible, its what I would like to do, and from what i was reading on pensionboard.ie it seemed to suggest that it was possible.

However, when I was talking to Eagle Star, they said that it wasnt possible, and I have been recommended by a broker from my old company to invest it in a Retirement Bond. Is it something unique to Eagle Star PRSAs - not accepting lump sums from company pensions, or should I look around for a PRSA provider than allows it?

Sorry for the confused question. I havent had to deal with this kind of stuff before. Thanks for your help.

 

[ClubMan]

I was contributing to a company pension (worth maybe 20K), can I transfer it into the PRSA when I am setting it up.

See here.

Are their tax considerations to take into account?

In relation to what? Such a transfer or something else?

If it is possible, its what I would like to do, and from what i was reading on pensionboard.ie it seemed to suggest that it was possible.

Only in certain circumstances is an occupational to PRSA transfer possible.

However, when I was talking to Eagle Star, they said that it wasnt possible, and I have been recommended by a broker from my old company to invest it in a Retirement Bond.

I suspect that this could be your best option too.

Is it something unique to Eagle Star PRSAs - not accepting lump sums from company pensions

No - see the link that I posted above.

While ES and the broker may be correct here you should really be seeking advice and information from an independent source just to be safe.

 

[MHarbour]

Thanks again for your advise Clubman.

This is where I get confused. One of the reasons listed in the link you added suggested that this would be possible if i changed job.

"You can only transfer your occupational pension scheme benefits
to a PRSA if you have been a member of the scheme for 15 years
or less, and the scheme is being wound up or you are changing job."

I was wondering why the broker was suggesting the Retirement Bond to me and not forming part of the PRSA. I was wondering if I would lose value in the transfer from my company's pension to the PRSA (if this was possible).

Yeah, trying to get as much information as possible from independent sources, including a friend of a friend who works in the area said that the lump-sum contribution from a company pension (which I have now left/no longer contributing to) to a PRSA would be straightforward.

Thanks once again for the help.

 

[ClubMan]

This is where I get confused.

Not surprising - pension stuff can be quite confusing and not always logical!

One of the reasons listed in the link you added suggested that this would be possible if i changed job.

"You can only transfer your occupational pension scheme benefits
to a PRSA if you have been a member of the scheme for 15 years
or less, and the scheme is being wound up or you are changing job."

Yes - but see here. My understanding is that if you are changing job (but the scheme is not being wound up) then you can transfer from the occupational scheme to a PRSA if the fund is valued at less than a certain amount (possible €10K or €12.7K as I mention in the other thread). However if it is above this then you need the actuarial report (certificate of comparison) before you can transfer. However nobody is doing these so while such a transfer is possible in theory, in practice it is not an option.

Since your occupational fund seems to be worth c. €20K or more I believe that the transfer to PRSA option is not open to you in practice even if allowed for under the relevant legislation.

Yeah, trying to get as much information as possible from independent sources, including a friend of a friend who works in the area said that the lump-sum contribution from a company pension (which I have now left/no longer contributing to) to a PRSA would be straightforward.

Again - while they may be correct in theory I believe that they are wrong in practice.

Simple - eh?!

 

[MHarbour]

thanks again ClubMan.