PRSA’s are growing in popularity having had a very low uptake when they were initially introduced. Our Head of Life & Pensions, Anne O’Doherty looks at this current trend, the drivers behind it and why there is a coming of age for PRSAs.
What is a PRSA?
For many years a Personal Pension was the main option for retirement savings for those who were self-employed or not in a company pension plan. This changed in 2003 with the introduction of Personal Retirement Savings Accounts (PRSAs). In essence, a Personal Pension and a PRSA are designed to do the same thing. That is to provide a way of saving for retirement. They benefit from the same tax treatment and access funds in the same way. But a PRSA was designed to be more flexible and transferable.
What are the benefits of a PRSA?
The main benefits of a PRSA are linked to its flexibility and transferability. These include being available regardless of your job or employment status, being able to increase, decrease or stop contributions at any stage without penalty and being able to transfer to another provider. In addition, a PRSA give you more options at retirement. For example, you can continue making contributions after you retire, while also receiving a pension income.
Can an Employer contribute to a PRSA?
Yes, an Employer may contribute to employees’ PRSAs but are not obliged to do so. Their obligation lies in providing access to the PRSA. Where an employer doesn’t have a pension scheme they need to provide employees with access to at least one standard PRSA. They must allow the PRSA provider or intermediary reasonable access to the employees at their workplace and facilitate payroll deduction of contributions.
Is BIK charged on PRSA contributions?
One of the biggest changes to PRSAs and a driving factor in their growing popularity was the removal of the Benefit-in-kind (BIK) charge on Employer contributions. Where contributions were previously treated as a BIK for the purposes of employee income tax, these contributions will now not attract a tax charge for an employee. Since the 1st of January 2023, Employees can pay unlimited BIK free contributions to a PRSA for an employee including company directors. These contributions will not be limited by salary and service, existing scheme funding or retained benefits.
When is a PRSA a good option?
The flexibility and transferability of PRSAs always made them a good option for certain people. A combination of factors has now thrown this net much wider and makes them attractive in several other circumstances. These include the option as an alternative to a group pension scheme, especially for smaller companies. BIK has been removed and this is a valuable benefit for employees. PRSA’s can be a flexible alternative to a Master Trust in place of an Executive Pension scheme.
Next steps
The flexibility that PRSA’s offer and the breadth of fund choices, now coupled with the additional funding options, make them a very attractive option for those wishing to start saving for their retirement. Several of the product providers have recently launched new PRSA product ranges. This is to ensure that they meet clients’ needs in as easy a way as possible. If you’d like to find out what the best options are for your own circumstances just get in touch with us at Quintas Wealth Management. We’re happy to talk you through your choices.
21 June 2023