Pension Options on PRSA Maturity

Sophrosyne

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1,008
Hi folks,

I looking for some information on behalf of a friend.


Mortgage paid off and no dependants.


PRSA maturity date June 2019.

Maturity value circa €114,000

Retirement date June 2020, & will qualify for the State old age pension.

€28,575 (25%) can be taken as a lump sum


With the rest of the funds, the options are:

  1. Guaranteed Pension (Annuity) Options

  2. Leave the funds in the PRSA as a post-retirement PRSA (vested-PRSA)

  3. Invest in an Approved Minimum Retirement Fund (AMRF) or Approved Retirement Fund (ARF)

  4. Taxable Lump Sum

I should be obliged for any insights as to which of the 4 options is best.
 

Conan

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965
An important starting point will be to work out total income in retirement. If only the State Pension, then they will not be in the tax net. Therefore (after taking the tax-free lump sum) any income drawdown (assuming 4% pa of the residual - if invested in an ARF or used to buy an Annuity) will also probably not fall into the tax net.
If the individual is getting the full State Pension, they will not be required to invest any residual funds into an AMRF (if aged 66). So the decision may be to invest the residual in an ARF or an Annuity. Based on a residual fund of circa €85,500, the minimum drawdown from an ARF would be c€3,400 ( similar for an Annuity). That would give a total income of c€16,300 (thus below tax threshold).
However if the individual has other income and falls into the tax net then the situation might have to be re-considered.
 

SBarrett

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3,129
I should be obliged for any insights as to which of the 4 options is best.
The best option will depend on the person's own circumstances and needs. An annuity will be paid to them for life without them having to think about how markets are performing. But rates are very low at the moment so they may not get the best value.

An ARF gives them a lot more flexibility and they can take out lump sums over the years but it has to be invested so it can go up and down in value. As you have flexibility in how much you take out, there's no guarantees and you may exhaust the value of the fund (in some situations, this is done on purpose to take out as much cash paying little or no tax, usually just 0.5% USC).

Taxable lump sum, no one really does this as you pay up to 52% in tax.


Steven
www.bluewaterfp.ie
 

Sophrosyne

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1,008
Thanks Steven.

I'm wondering whether it might be better to invest the residual amount of €85,500 elsewhere for a time just to boost it up a bit before buying an annuity or an ARF.

The person concerned could just about manage on the OAP for a while.
 

SBarrett

Frequent Poster
Messages
3,129
Thanks Steven.

I'm wondering whether it might be better to invest the residual amount of €85,500 elsewhere for a time just to boost it up a bit before buying an annuity or an ARF.

The person concerned could just about manage on the OAP for a while.
Where is it invested now? It's in something.

The bigger the boost you look for, the bigger the risk with the investment if markets fall.

If they are 60 or older, they can mature the pension now if they wish, they don't have to wait until the maturity date of the policy.


Steven
www.bluewaterfp.ie
 

Sophrosyne

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1,008
It is an Irish Life PRSA due to mature in June 2019.

The person concerned will not retire until June 2020, when they will be aged 66.
 
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