A
a0nghus
Guest
Hi there
I have struggled with the various pension options open to me since I arrived back in this country 3 months ago. The following outlines the pros and cons of each type and my recommendations for what one to go for whether you’re an employee, self-employed or a 5% director. Hope it is helpful but also looking for feedback where I might have got it wrong.
Regards
Aonghus
What kind of pension should I get?
Depends on whether you are an Employee, Sole Trader or Company Director
Employee options are…
…Occupational (if provided), Personal (if no occupational) or PRSA
If Occupational is provided you should consider:
·        Is it defined contribution or defined benefit. If DB then your employer is taking the investment risk and this is a big advantage. Personal/PRSAs are all DC
·        If occupational then your employer must contribute at least 10%. No requirement with Personal/PRSA
·        If occupational there is no (revenue) cap on what your employer contributes. This is restricted in Personal/PRSA
·        If occupational there may be other benefits not included in Personal/PRSA e.g. Death in service
·        If leaving employment you may not be entitled to employer contributions if still inside vesting period. Fully entitled with PRSA
·        If leaving employment your options for what to do with your fund are quite limited as trustees retain control. Control of PRSAs and pensions remains with you
·        On retirement, your options are very limited and FA99 provisions are not available (e.g. transfer to ARF) as they are for Personal/PRSA
If occupational is not provided then your options are Personal pension or PRSA
The points to consider are:
·        Flexibility: PRSAs are much more flexible in terms of postponing premiums and transferring monies in and out
·        Employer contributions: PRSAs allow employer contributions while personal pensions do not (PRSAs attract BIK but the net effect is zero as the employee receives a tax credit)
·        Employer’s PRSI: The amount that employer pays is based on employee gross income LESS PRSA contributions. This creates an incentive for the employer to contribute. Not available with personal pension
·        Tax and PRSI relief: These are given at source with PRSA. Also available with Personal but must be applied for separately through IOT and CG
·        Charges: Standard PRSA charges are capped making them more transparent. Non-standard PRSAs and Personal pension have no maximum charges BUT still may cost less in the long term depending on individual plan.
·        Options on retirement and revenue rules are broadly similar on both.
·        Fund Choice: More fund choice exists with Personal and Non-standard PRSAs. This is reflected in the charging structures. Fund choice should be determined by your attitude to risk and reward
Recommendations:
·        Occupational should be seriously considered if 1) Defined benefit scheme and b) employer is making significant contributions. Otherwise…
·        PRSA has the upper hand over Personal on the basis of flexibility, employer’s incentive to contribute, tax and PRSI relief at source.
·        A Standard PRSA has a transparent capped charging structure, which is recommended over a non-Standard or a personal pension if your choice of fund is available. (You should note that a non standard or a personal pension may be less expensive in the long run)
·        If choice of fund is very important then a non standard PRSA and Personal pension have the upper hand in terms of number of funds available
If you are Self employed..
…your options are PRSA versus Personal Pension.
The relative advantages of PRSAs are the same as above except that….
…employer contributions are irrelevant as you are the employer
If you are a company director…
…the recommended option is an Occupational (Executive) scheme because:
·        You can use company funds to make contributions with no BIK implications
·        There are no revenue limits on amounts contributed by the company
·        You can make personal contributions as well which will attract tax relief at your marginal rate
·        Retirement options and control are the same as for PRSA/Personal pensions
Other Options:
Whether Self Employed, an employee or a company director you also have the option of a self-administered pension.
Points to consider:
·        Self administered are suitable for people who require a greater level of control over their pension investments
·        Direct investment in any assets (at arms length) is allowed i.e. you don’t have to invest via a Life company
·        High costs of entry will mean that it only suits high net worth individuals
I have struggled with the various pension options open to me since I arrived back in this country 3 months ago. The following outlines the pros and cons of each type and my recommendations for what one to go for whether you’re an employee, self-employed or a 5% director. Hope it is helpful but also looking for feedback where I might have got it wrong.
Regards
Aonghus
What kind of pension should I get?
Depends on whether you are an Employee, Sole Trader or Company Director
Employee options are…
…Occupational (if provided), Personal (if no occupational) or PRSA
If Occupational is provided you should consider:
·        Is it defined contribution or defined benefit. If DB then your employer is taking the investment risk and this is a big advantage. Personal/PRSAs are all DC
·        If occupational then your employer must contribute at least 10%. No requirement with Personal/PRSA
·        If occupational there is no (revenue) cap on what your employer contributes. This is restricted in Personal/PRSA
·        If occupational there may be other benefits not included in Personal/PRSA e.g. Death in service
·        If leaving employment you may not be entitled to employer contributions if still inside vesting period. Fully entitled with PRSA
·        If leaving employment your options for what to do with your fund are quite limited as trustees retain control. Control of PRSAs and pensions remains with you
·        On retirement, your options are very limited and FA99 provisions are not available (e.g. transfer to ARF) as they are for Personal/PRSA
If occupational is not provided then your options are Personal pension or PRSA
The points to consider are:
·        Flexibility: PRSAs are much more flexible in terms of postponing premiums and transferring monies in and out
·        Employer contributions: PRSAs allow employer contributions while personal pensions do not (PRSAs attract BIK but the net effect is zero as the employee receives a tax credit)
·        Employer’s PRSI: The amount that employer pays is based on employee gross income LESS PRSA contributions. This creates an incentive for the employer to contribute. Not available with personal pension
·        Tax and PRSI relief: These are given at source with PRSA. Also available with Personal but must be applied for separately through IOT and CG
·        Charges: Standard PRSA charges are capped making them more transparent. Non-standard PRSAs and Personal pension have no maximum charges BUT still may cost less in the long term depending on individual plan.
·        Options on retirement and revenue rules are broadly similar on both.
·        Fund Choice: More fund choice exists with Personal and Non-standard PRSAs. This is reflected in the charging structures. Fund choice should be determined by your attitude to risk and reward
Recommendations:
·        Occupational should be seriously considered if 1) Defined benefit scheme and b) employer is making significant contributions. Otherwise…
·        PRSA has the upper hand over Personal on the basis of flexibility, employer’s incentive to contribute, tax and PRSI relief at source.
·        A Standard PRSA has a transparent capped charging structure, which is recommended over a non-Standard or a personal pension if your choice of fund is available. (You should note that a non standard or a personal pension may be less expensive in the long run)
·        If choice of fund is very important then a non standard PRSA and Personal pension have the upper hand in terms of number of funds available
If you are Self employed..
…your options are PRSA versus Personal Pension.
The relative advantages of PRSAs are the same as above except that….
…employer contributions are irrelevant as you are the employer
If you are a company director…
…the recommended option is an Occupational (Executive) scheme because:
·        You can use company funds to make contributions with no BIK implications
·        There are no revenue limits on amounts contributed by the company
·        You can make personal contributions as well which will attract tax relief at your marginal rate
·        Retirement options and control are the same as for PRSA/Personal pensions
Other Options:
Whether Self Employed, an employee or a company director you also have the option of a self-administered pension.
Points to consider:
·        Self administered are suitable for people who require a greater level of control over their pension investments
·        Direct investment in any assets (at arms length) is allowed i.e. you don’t have to invest via a Life company
·        High costs of entry will mean that it only suits high net worth individuals