A Retirement Annuity Contract “RAC” is the formal name for what is normally called a personal pension. An RAC is a particular type of insurance contract approved by the Revenue. It is a defined contribution pension plan. The value of the ultimate benefits payable from the contract depends on the level of contributions paid, the investment return achieved and the cost of buying the benefits.

You can take out a Personal Pension if you have, or have had at some stage, relevant earnings. Relevant earnings are considered earnings from a job that are not being pensioned in a company pension plan or a self-employed trade or profession.

You can contribute to a Personal Pension Plan and a PRSA in any one tax-year.

Self-employed individuals who are members of an association or group representing the majority of members of a particular occupation may be able to join a group Personal Pension Plan set up under trust for that association or group, for example the Dental Association.  The same limits and restrictions apply as for insured contracts.

You are entitled to income tax relief on contributions paid to an RAC. This relief is normally claimed back from the revenue in your annual tax return. You can pay more contributions but the tax relief available will be limited. The amount of tax relief you can get depends on your age.

Should you contribute to both a Personal Pension Plan and a PRSA in one tax year, then the above limits apply to your total contributions to both arrangements.

You can take a benefit from a Persona Pension Plan at any time after age 60 but before age 75 and at any time in the event of serious ill health. You do not need to retire in order to draw a benefit. In the case of retirement due to serious ill-health, you will be deemed to be permanently unable to work.

The amount of your benefit will depend on the level of contributions paid, the investment return earned on those contributions and the cost of buying your pension. On retirement you can choose to take up to 25% of your retirement fund as a tax-free lump sum. The balance of the fund traditionally had to be used to purchase an annuity (a pension). This annuity must be payable for the individual’s life. All annuities in payment are subject to PAYE at source and the health levies.

It is possible in some circumstance to draw a benefit from a Personal Pension Plan in the event of serious illness.

Should you die before you have taken a benefit from your Personal Pension Plan, then the value of your retirement fund is payable to your estate. If you die within a few year of your Personal Pension Plan commencing the fund payable may be relatively small, due to the limited time over which contributions have been paid. To provide a higher death benefit you may wish to take out additional life assurance.

All Personal Pension Plans taken out after 6th April 1999 can be transferred to another Personal Pension Plan. This transfer value can also be paid to a PRSA, by mutual agreement between you and the insurance company concerned.

Company pension plans, or occupational pension’s plans as they are sometimes known, are set up by employers to provide retirement and death benefits for their employees.  There is no legal obligation on a company to set up a company pension plan.  These plans are normally set up either under trust or on a statutory basis.  Statutory plans are set up by legislation and provide benefits for employees in the public sector or semi-state bodies.

You should ask your employer if there is a company plan, what sort of plan it, and whether you can join the plan. Each company pension plan has eligibility rules. These rules set out who can join the plan, when they can join and the benefits available to them.

Both full-time and part-time works are now being catered for following the part-time worker legislation being updated in 2001.  Employers must now provide prorate benefits for part-time employees who work at least 20% of the time worked by a comparable full-time employee, unless there are special circumstances whereby part-time employees need not be included.

Members are often asked to contribute towards the cost of a company pension plan. Contributions tend to be set as a percentage of salary. In defined contribution plan, the employer’s contribution is set out in the plan’s documents. In a defined benefit plan the employer normally pays contributions at the leave needed to fund the benefits promised.

Additional Voluntary Contributions.  AVCs are contributions that a member makes to increase retirement benefits. AVCs are only permitted if the rules of the particular plan permit AVCs to be made. If the rules do not permit AVSs to be made then a Standard PRSA must be offered by the employer for the purpose of making AVCs. If you have a plan which allows AVC’s and if the rules of the plan permit, you can use your AVCs to provide:

• All or part of the tax-free lump sum
• Additional pension
• A payment to an approved retirement fun “ARF” or and Approved Minimum Retirement Fun “AMRF”
• A taxable lump sum.

Your contributions to a company pension plan will normally be paid through payroll.  As a result you will receive immediate and automatic tax relief together with relief from PRSI and the health levies.  You do not have to claim this relief.
The maximum contribution rate (as a percentage of total pay) on which you can receive tax relief is;

For tax relief purposes, these contributions are capped each year.  You are not taxed on any employer contributions paid to a company pension plan.

Membership of a company pension plan ceases when you leave that employment. If you have more than two years service you will be able to:

• Leave your benefit in the plan until you retire

Or

• Move or transfer the value of your pension benefits to another pension arrangement.

If you have less than 2 year service you may be obliged when you leave the service to take a refund of the value of your own contributions less tax at the basic rate. Some plans may permit you to leave your contributions in the plan, even though they are not required to do so by law. AVCs are treated in the same way as main plan benefits.

Most company pension plans in the private sector permit members to retire early with the employer’s and/ or trustees consent from age 50 onwards. Many plans allow members to retire due to ill-health at any age.

With a defined benefit plan, early retirement benefits are normally lower to allow for additional cost of paying benefits early and for a longer period. With a defined contribution plan the fund available to provide you benefits would be lower on early retirement.

Company pension plans typically provide benefits should you die in employment. The precise form of these benefits will depend on the rules of any particular plan. These benefits may, however, include one or all of the following:

• A lump sum, often a multiple of your salary
• A refund of your contributions, including any AVC’s
• A spouse’s or partner’s pension, payable for life, or
• A child’s or orphan’s pension, normally ceasing at age 18 (later if in full-time education) and may be limited to a maximum of 2 or 3 children

Employees, the self-employed, homemakers, careers and the unemployed – in fact every adult under age 75 may take out a PRSA. The relevant legislation does not state a minimum age, however, in practice, this may be imposed by contract law. Importantly, unlike RACs, there is no requirement to have taxable earnings in order to pay contributions.  The law that introduced PRSAs gives all ‘excluded employees’ the right to contribute via payroll to a standard PRSA set up by their employer.

In summary, excluded employees are:

• employees who are not offered membership of a company pension plan, or
• employees who are included in a company pension plan for death in service benefits

only, or

• employees who are ineligible to join a company pension plan and who will not, under the rules, become eligible to join the plan for pension benefits within six months from the date they commenced employment, or
• employees who do not have access to AVCs through their company pension plan.

The value of your PRSA can be transferred to:

• another PRSA,
• a company pension plan,
• an overseas pension plan in certain circumstances.

Your PRSA provider cannot charge you for transferring the value of your fund.

Contributions may be paid to a PRSA by both an individual and by an employer, however an employer does not have to contribute. If you have more than one source of income, you may take out a PRSA in respect of a source of income from self-employment or non-pensionable employment, while being a member of a company pension scheme. If you have only one source of income and are a member of a company pension scheme, you may pay AVCs either within the company pension scheme or to a PRSA.

The Pensions Board and the Revenue Commissioners are jointly responsible for approving PRSA products. The Board supervises the activities of providers in relation to their approved products and monitors compliance with PRSA legislation. The Financial Regulator is responsible for the prudential supervision of PRSA providers and the supervision of the sales process of approved PRSA products.

Yes, but the contributions to b both are added together when calculating your maximum tax relief, which is dependent on your age.

Yes, The Pensions Board, in consultation with the Revenue Commissioners, can suspend or withdraw a PRSA product if a PRSA Provider:

• Requests it
• Has stopped trading for more than six months
• Has failed to meet its statutory obligations.

Yes, PRSA providers cannot impose a minimum contribution to your PRSA great than:

• €300 per annum, and
• €10 per electronic transaction, or
• €50 per transaction for other methods of payment.

You can contribute as much as you like to your PRSA, as long as you meet the minimum contribution levels. However, the amount of tax relief you can get on contributions depends on your age.

The amount of tax relief you can get depends on your age.

If you are a sportsperson or a professional who usually retires at an earlier age than the norm (such as an athlete or jockey), you can get tax relief on 30% of your net relevant earnings regardless of your age. Relief is given at your marginal (higher) tax rate.

No, you do not have to make regular contributions to your PRSA. However, if you re arranging your PRSA through an employer scheme, you will usually make monthly payments. If you are paying directly into your PRSA, most providers allow you to pay monthly, quarterly, half-yearly and yearly. Some providers allow you to pay weekly. You can make additional top-up contributions to a PRSA at any time.

If you new job allows you to become a member of an occupational pension scheme, you may transfer your PRSA into that scheme.  Alternatively, if your new job is not pensionable or you become self-employed, you can continue to contribute to your PRSA.

Your PRSA contributions are invested in a range of funds. The value of your PRSA can increase or decrease, depending on the performance of these funds.

You do. It is your PRSA and you choose the type of funds to be invested in and the strategy to be followed. All PRSAs must have a default investment strategy. Your provider will also give you a choice of investment funds outside this strategy and you can choose to invest in any of those instead.

You can normally start taking your benefits when you are aged between 60 and 75. You may be able to take your benefits earlier, for example, if you retire from employment at age 50 or over, or if you can no longer work because of a serious illness or disability. However, you cannot use your PRSA as security for a loan or assign it to someone else.

No, you are not taxed for capital gains on the investment return you get on your PRSA. You may, however, have to pay income tax on the pension income you receive from your PRSA.