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There are two types of personal pensions – the Retirement Annuity Contract (RAC) and the Personal Retirement Savings Account (PRSA).

The latter is a newish type of pension designed to give people a low-cost and flexible way to save for retirement. They are available from a limited number of providers, approved by the Pensions Board.

Personal Pension or Retirement Annuity Contract

A Retirement Annuity Contract (RAC) is the formal name for a personal pension plan, approved by the Revenue, that is managed for you by a life-assurance firm or investment company.

It is designed for the self-employed.

Anyone who earns an income but can’t join an employer’s pension scheme can set one of these up. You have to set it up yourself and claim tax relief yourself each year. If you are employed, your company cannot usually contribute to an RAC.

They are what is known as a ‘defined contribution pension’ – the value depends on how much you put in and how much return is generated by the investments.

Personal pensions are not generally subject to the regulation of the Pensions Board. Instead, personal pensions are subject to tax law and financial services legislation (including the general law on insurance).

Personal pensions are, in general, insurance contracts and are not regulated by the Pensions Board; complaints about them should be made to the Financial Services Ombudsman.

There are a few exceptions to this rule: a small number of “Group” personal pension schemes are set up under trust – generally by bodies which represent all or most of the people working in a particular trade or profession.

Those schemes are subject to limited regulation by the Board and fall under the jurisdiction of the Pensions Ombudsman.

PRSA

The traditional personal pension arrangement was that you invested your money - usually on an annual basis - with an insurance company.

The premiums you paid were then invested by the insurance company in an investment fund. You could not remove your funds and invest them with another company. When you reached the age specified in the policy, you were obliged to use your accumulated funds to buy an annuity.

Since 1999, you are no longer obliged to buy an annuity and you also have considerable flexibility about moving between different funds.

Who can take out a PRSA?

Virtually everyone can have a PRSA regardless of your job or employment status. You can get a PRSA if you are a part-time or casual employee, a highly paid professional, self-employed, a home-maker, a carer, a jobseeker, unemployed, or a partner in a partnership.

The benefits of a PRSA

They are portable – you can take them from job to job or transfer it to another pension company without any penalty or charge.

You can continue to contribute to them after you retire.

Who contributes to your PRSA?

You contribute to your PRSA. If you are an employee your employer may also contribute but they are not obliged to.

How much of my salary is eligible for tax relief?

The amount that you will get tax relief increases over age. The theory being that when you reach your fifties your mortgage will be paid off, your children will have flown the coop and you will have more disposable income to invest in your retirement pension.

The tax brackets are set out below.

Someone between 40 and 49 who earns €100,000 is eligible to get relief on 25 per cent of their contribution. This means it is tax-efficient to contribute anything up to €25,000. However someone under 30 can only claim tax relief on €15,000.

What level is the tax relief?

Up to 2010, the tax relief was applied at the higher rate of tax - 41 per cent.

In line with the four-year plan, this is being reduced to 34 per cent in 2012 and will be reduced between now and 2014 to 20 per cent.

The maximum investment per year for tax purposes is down in 2011

The maximum gross income figure for relief purposes is €150,000 in 2010. This is being reduced by 23 per cent to €115,000 in the December 2010 budget.

How do I get a PRSA?

There are currently 11 PRSA-approved providers in Ireland including the big companies such as Canada Life and Zurich, with 78 approved products or pension options.

For a full list of approved providers click here: (PDF)

For more information on PRSAs go to the Pension Board (PDF)  

Citizens information

Can I have a PRSA and an occupational pension?

The answer is yes, but you won’t get tax relief on your contributions to the second arrangement unless:

• you have income from another employment or self-employment; or
• the second arrangement is an “AVC” PRSA designed to accept Additional Voluntary Contributions to supplement the benefits you have from an Occupational Pension Scheme.

NOTE: If you have an existing personal pension when you join an occupational pension scheme, you don’t have to freeze or discontinue it, but you won’t be able to claim tax relief on contributions if you haven’t got a separate income.

An existing PRSA could be converted into an AVC PRSA, and a personal pension can be turned into a PRSA (and then into an AVC PRSA) if the provider agrees.