Key Post: PRSA vs. Occupational Pension Scheme

[Brendan Burgess]

I thought I had done a key post on this but I can't find it. Is this a correct summary?

If you are an employer setting up a pension fund for employees, you should consider both options.

If you are an ordinary employee with a choice of joining your employer's scheme, then this will be relevant to you.

If your employer contributing to a defined benefit or defined contribution pension scheme, that will usually always be better than a PRSA.

If you are a 5% director, there are other options and this guide is not appropriate to you.

PRSAs
The big advantage is that you can put the proceeds into an ARF.

In general they are more flexible.

The tax-free lump sum on retirement is 25% of the fund

There is an option to do a Self Administered PRSA (through Custom House Capital)

Occupational Pension Scheme
Can be cheaper. On a nil commission basis, the charges are 101% allocation + .75% annual charge vs. 100% allocation and 1% annual charge for a PRSA.

An employer has no effective limit on an Occupational Pension Scheme, whereas the combined contribution to a PRSA is limited to, say 20% for an employee aged between 30 and 40.

The big disadvantage is that, under current rules, the employee must buy an annuity on retirement.

At retirement, the tax-free lump sum is 1.5 times final salary.

 

[Conan]

Re: PRSA vs. Occupational Pension Scheme

Brendan,
your summary, as far as it goes, is correct.
BUT,
if one is a 5% Director the ARF facility (and the 25% tax free lump sum) is also available under the Occupational pension scheme structure.

For an "employee" (as opposed to a 5% Director), it may be that the PRSA offers more flexibility (ARF etc), subject to the contribution limits.

For a 5% Director however, the Occupational Pension Scheme is better as it allows a higher rate of contribution from the Company (no 30% limit).

 

[Summer]

Re: PRSA vs. Occupational Pension Scheme

Brendan,
Could you please include AVC's in your key post. Can they be used independently for an ARF?
Thanks
Summer

 

[Brendan Burgess]

Re: PRSA vs. Occupational Pension Scheme

Hi Conan

Thanks for that. I have edited the post to show that it does not apply to 5% directors.

Hi Summer

This particular post is very specific - it is to arrive at a decision which is best for an ordinary employee - a PRSA or an Occupational Pension Scheme. It is not meant to be a comprehensive guide to pensions. I think you will find AVCs addressed elsewhere on the site.

Brendan

 

[ajapale]

Re: PRSA vs. Occupational Pension Scheme

Hi Brendan,

I hope Im not being pedantic here but I think you are comparing PRSA's and Defined Contribution Occupational Pension Schemes.

aj

 

[Brendan Burgess]

Re: PRSA vs. Occupational Pension Scheme

Thanks AJ

Again, I have clarified the original post, just in case someone passes up on the opportunity of joining a pension scheme where the employer is making a contribution.

Brendan