A PRSA or “personal retirement savings account”, is a pension plan issued by a life insurance company to an individual. Contributions can be made to the PRSA by the employer, by the employee or by both. You don’t need to be in employment to have a PRSA, however tax relief will only apply to contributions made from relevant earnings.
PRSA’s are most suitable for employees who are not members of an occupational scheme and may also suit the self employed. PRSA’s were designed to be flexible, portable and low cost pension products. An individual can take their PRSA with them when moving jobs.
Employer contributions to a PRSA are treated as a benefit in kind tax deductible business expense. In addition, employer contributions are not subject to employers or employees PRSI. However the employee is subject to the USC on the employers contribution.
Individual employee contributions made to a PRSA are tax deductible for the individual against net relevant earnings. Since Jan 1 2011 individual PRSA contributions are subject to PRSI. The employer must also pay 50% of the employer PRSI rate on the employee PRSA contribution.
The current maximum limits for income tax relief are as follows:
|Age||Maximum Tax relief
As % of Earnings (NRE)
|30 – 39||20%|
|40 – 49||25%|
|50 – 54||30%|
|55 – 59||35%|
The limits above are capped to a maximum earnings ceiling of €115,000 for 2011. In addition, for some professional sportspeople, a higher rate applies regardless of age.
It is possible to backdate PRSA contributions paid in the current tax year, to the previous tax year, once the contribution has been made before Oct 31st. It also possible to carry forward any excess contribution made, in order to gain tax relief in future years.
PRSA Versus Personal Pension Plan?
The key difference between PRSA’s and personal pension plans, is that employer contributions can be made to PRSA’s, they cannot be made to personal pension plans. Another difference is that PRSA’s have statutory set charges, whereas personal pension plans do not. However, based on the level of contributions personal pension plans may offer the individual lower charges.
Members of occupational pension schemes may elect to make AVC contributions to an AVC PRSA, rather than the main occupational scheme. Individuals may split AVC contributions between the occupational scheme and an individual AVC PRSA.
See the » AVC’s page for further details.