Personal Pension Plans: These are private pension policies managed by life assurance companies and investment firms. You have to be earning an income or be self employed to buy one of these plans.

Personal Retirement Savings Accounts: This is a special type of personal pension policy designed to be more flexible than the traditional Personal Pension Plan. Anyone up to age 75 can take out a PRSA. You don't have to be earning an income (although you won't get tax relief on your contributions unless you have an income).

 

How much will I get when I retire?

All personal pension plans and PRSA's are set up as defined contribution plans. This means that the value of your pension at retirement can only be estimated. It depends on the level of contributions paid in, the growth of your pension fund and charges you have paid.

 

Indexation

If you pay regular monthly contributions, your pension provider may automatically increase your contribution each year at a fixed rate in line with price increases generally unless you tell them you don't want to. This is called indexation. Increasing your contributions this way helps build up your fund faster, but remember that charges apply to each increase.

 

How much do I need to contribute?

With a Personal Pension Plan or PRSA, you have to decide how much to contribute in order to give you the income you will need when you retire. Let's call this your 'pension target'. The chart below shows that the older you are when you start saving, the more you need to save each year to reach your pension target.

If you are 35, earning €30,000 a year and you want a retirement income of €20,000 a year (including the State pension), you would need to save about €5,200 a year before tax for the next 30 years.

 

 

To achieve the same benefits starting at age 45, you would need to save €8,600 a year for the next 20 years. So, it pays to start as early as possible.

Contact our sales team to get a rough estimate of the yearly amount you need to contribute to reach any desired pension at age 65. Even if you cannot contribute as much as you would like, any contribution to your pension is better than nothing at all.

 

Source: Society of Actuaries. Assumes a pensionable age of 65, pension increases each year of 2% and a pension for the surviving husband or wife of 50% of the main pension, to be paid when the main pensioner dies. Charges are deducted as per standard PRSA, i.e a 5% contribution charge and an annual management of 1% of the fund.

 

 

 

Charges on Personal Pension Plans and PRSA's

You have to pay certain fees and charges to your pension provider for collecting and investing your contributions, and for managing your pension fund.

 

Effect of charges

Charges can have a significant effect on the value of your pension at retirement, especially ongoing yearly charges. These are calculated as a percentage of the amount of your fund so the amount charged will increase as your pension fund grows over the longer term. So, it is important to keep charges as low as possible.

Remember that pensions with high charges may or may not perform better than similar pensions with lower charges.

 

Initial Charges

Ongoing charges- for managing your plan

Note that only some of these charges may apply depending on the type of plan you have.

 

 

 

What are the differences between Personal Pension Plans and PRSA's?

 

The main differences are:

1. Level of charges

2. Fund choice

3. Employee access and employer contribution.

 

1. Level of charges

There are two types of PRSA, a Standard PRSA and a non- Standard PRSA. Charges vary depending on whether you have:

• a Standard PRSA;
• a non- Standard PRSA; or
• a Personal Pension Plan

Summary of the level of charges on each type of pension

 

 

 

2. Fund choice

Most PRSAs and Personal Pension Plans give you a choice of different funds you can invest in.

There are certain investment restrictions on Standard PRSAs, but the fund choice is broad enough to meet most people's needs.

While you may have a wider choice of funds with non- Standard PRSAs and Personal Pension Plans, you usually have to pay higher yearly fund management charges on these plans.

Consider whether these funds are worth the extra cost, because there is no guarantee that high cost funds will earn a higher return. Remember too that yearly fund management charges increase as your fund value increases.

 

Switching Funds

With most plans you can switch between funds from time to time. Some pension providers apply a small charge for this; others allow free switching, so ask about any switching costs. Remember, you may need financial advice to help you choose between different funds on any pension plan.

 

Employee access and employer contributions

PRSAs

By law, your employer must make at least a Standard PRSA available to you, and must take your contributions from payroll if

• There is no employer pension plan in place through your job
• You are not eligible to join your employer pension plan within the first six months of service;
• You are eligible to join but only for death-in-service benefits or
• You cannot pay AVCs through your employer's pension plan.

The benefit of contributing to a PRSA that your employer has set up is that you get tax relief automatically and don't have to claim it yourself. Your employer may also contribute to your PRSA but does not have to.

 

Personal Pension Plan

Your employer does not have to make a Personal Pension Plan available to you. You have set up this type of plan yourself, arrange to pay your own contributions and claim any tax relief yourself. Your employer cannot usually make contributions to your Personal Pension Plan.

 

Tax Relief

If you have a Personal Pension Plan or a PRSA that is not set up by your employer, you have to claim tax relief each year. You do this by sending in your Personal Plan details or your PRSA Certificate to the Revenue as part of your yearly tax return.

 

Personal Pension Plans and PRSAs- a summary

 

 

What information do I get when to start a Personal Pension or PRSA?

You will get a product disclosure statement that tells you what you will need to know, including;

• Fees and charges you'll pay;
• Main pension benefits and any death-in-service or disability benefits;
• Investment funds you may be able to choose; and
• An estimate of the future pension value, assuming a set rate of fund growth each year.

 

How will I know how my pension is performing?

If you have a PRSA, your PRSA provider must send you:

• An 'annual statement of reasonable projection' showing the pension benefits that you can expect to get from your PRSA; and
• A six monthly report on the performance of your PRSA fund.

 

If you took out a Personal Pension Plan after February 2001, your pension provider must send you a statement at least once a year. If you took it out before then, you should ask your financial advisor or pension provider for a statement if you have not already received one.

What should I do with the information I get?

The information will help you to work out how your pension is performing and will show the expected value of your pension in today's money. You should use the information in your statements to review your pension regularly. You may need our sales team to advise you, and help you decide whether you are contributing enough to give you the pension you need and to make sure that your charges are in line with your pension contract.

 

What are my options if I am moving jobs?

Most Personal Pension Plans allow you to continue your existing plan when you move jobs. If you expect to miss a number of contributions, you should contact our sales team to ask what charges might continue to apply.  PRSAs are 'portable pensions' that you can carry from job to job, and can stop and start contributions as necessary.

 

What happens if I become ill and cannot continue to work?

If you become permanently unable to work due to ill-health and have to retire, you can immediately draw on your pension plan no matter how young you are. As with voluntary early retirement, the amount you get will be much less than if you contributed up to your original expected retirement age because you have paid fewer contributions and these have been invested for a shorter time.

 

What happens if I die before I retire?

The value of your Personal Pension or PRSA passes to your estate for the benefit of your dependants if you die before you retire. You need to consider the value of your pension plan when deciding how much life insurance cover you need, or when you make a will.