Personal Retirement Savings Account (PRSA) - IT14A

Introduction

A personal retirement savings account (PRSA) is a long-term personal retirement account introduced by the Pensions Act 2002. It is designed to enable people, especially those with no pension provision, to save for retirement in a flexible manner. A PRSA is a contract between an individual and a PRSA provider in the form of an investment account. Subject to age and income based limits, tax relief will be given for contributions to a PRSA.

The Pensions Board and the Revenue Commissioners approve PRSA products. Prudential supervision of PRSA providers is within the jurisdiction of existing regulators. The Pensions Board is responsible for supervision of a provider’s activities in respect of its PRSA products.

Employers, who do not provide an occupational pension scheme for their employees, are obliged to provide access to at least one standard PRSA.

Tax Rules relating to Personal Retirement Savings Accounts

• Tax relief on contributions
• Net pay arrangement
• Tax relief for individuals (employed and self-employed)
• Contributions made by employers
• Tax relief for employers
• PRSAs and Retirement Annuity Contracts (RACs)
• PRSAs and Additional Voluntary Contributions (AVCs)
• PRSAs and occupational pension schemes
• Tax regime in funding period
• Retirement options
• Further information

Tax relief on contributions

Contributions paid into a PRSA benefit from tax relief at an individual’s marginal income tax rate. There is also relief from PRSI and the health levy for employees. Where PRSA contributions are deducted by an employer, the "net pay arrangement" will apply.

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Net pay arrangement

The "net pay arrangement" operates such that the employer deducts the PRSA contribution before calculating PAYE, PRSI and Health Contribution due on the employee’s emoluments for the relevant pay period. Before operating the "net pay arrangement", the employer will have to satisfy himself/herself that the PRSA is approved by the Revenue Commissioners. In this regard, the employer must obtain a PRSA (Net Pay) Certificate from the employee and retain that certificate. The employee will obtain the certificate from his/her PRSA provider.

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Tax relief for individuals (employed and self-employed)

The maximum annual tax-deductible contributions are based on a percentage of the individual’s net relevant earnings. The allowable percentages rise with age. Members of an occupational pension scheme or of a statutory pension scheme may pay additional voluntary contributions (AVCs) into a PRSA. Separate rules apply to such contributions – see below.

Relief is allowed against relevant earnings, i.e. earnings from a trade, profession, office or employment. Earnings as a proprietary director or proprietary employee of an investment company are not relevant earnings. Net relevant earnings are relevant earnings less losses, capital allowances and certain payments which reduce a person’s income for tax purposes such as tax effective covenants.

The maximum pension contribution, in any one year, for which you are entitled to tax relief, is related to your age and is expressed as a percentage of your gross income. The maximum gross income figure for relief purposes is €275,239 in 2008 and €150,000 in 2009 and 2010.

Thus, for example, an individual aged 35 can gain tax relief on the lower of

• 20% of net relevant earnings (subject to the maximum gross income figure), or
• the contribution paid in that year.

A 30% earnings limit will apply, irrespective of age, to certain specified sportspersons:

• athletes,
• badminton players,
• boxers,
• cyclists,
• footballers,
• golfers,
• jockeys,
• motor racing drivers,
• rugby players,
• squash players,
• swimmers, and
• tennis players.

Except in the case of an employee who is a member of an occupational pension scheme or of a statutory pension scheme, a taxpayer is entitled to tax relief on a contribution of €1,525 paid even if this exceeds the normal income-based limit.

Contributions paid in any year in excess of the maximum tax deductible contribution may be carried forward and claimed in future years subject to the annual limit for those years. Similarly, contributions paid while out of the workforce may be carried forward and claimed against future earnings on return to paid employment subject to the annual limits.

The tax relief is non-transferable between spouses in line with existing rules for retirement annuity contracts (RACs) and occupational pension scheme contributions.

A contribution not allowed in one year because it exceeds the age or income related limit may be carried forward and relief allowed in subsequent years. If a contribution is paid after the end of the year, but before the following 31 October, relief may be allowed in the earlier year provided an election to do so is made by the individual on or before the 31 October. Taxpayers filing returns under ROS may avail of the extended filing date to make an election and pay a contribution.

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Contributions made by employers

Contributions made by an employer to a PRSA on behalf of an employee are treated as a benefit-in-kind of the employee. Such contributions are treated for relief purposes as made by the employee. The employer must declare the contribution on form P11D.

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Tax relief for employers

Employer PRSA contributions on behalf of employees will be fully deductible for tax purposes in arriving at the profits or gains of a trade or profession or in a calculating management expenses of an investment company.

PRSAs and Retirement Annuity Contracts (RACs)

Transfers from an RAC to a PRSA will be allowed. Contributions to an RAC and a PRSA (excluding PRSA-AVC) will be aggregated when calculating the maximum tax relief.

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PRSAs and Additional Voluntary Contributions (AVCs)

Employees in an occupational pension scheme or a statutory scheme may make AVCs to a PRSA. The PRSA must be established under a rule of the main scheme or under a separately arranged scheme, approved by the Revenue Commissioners, which is associated with the main scheme.

The following age related limits will apply to the total of employee contributions to an occupational pension scheme and the ‘PRSA-AVC’:

Such employees also benefit from the ‘tax-free’ employer contribution to the occupational pension scheme which is limited by funding requirements.

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PRSAs and occupational pension schemes

Transfers from an occupational pension scheme or a statutory scheme to a PRSA will be allowed where the member has been in the scheme for 15 years or less and either:

• the scheme is being wound up, or
• the member is changing employment.

The value of AVC contributions to an occupational pension scheme may be transferred to a PRSA without regard to the foregoing restrictions.

Refunds of contributions (with interest where applicable) paid out from occupational schemes may be transferred to a PRSA without a tax charge. The purpose of this measure is to encourage pension funding. In other cases such refunds are charged to income tax at the standard rate (currently 20%).

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Tax regime in funding period

The existing tax regime for pension business will apply to PRSA business, i.e. there will be tax-free growth during the funding period.

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Retirement options

When you retire, the funds in your PRSA will be dealt with under the regime for Approved Retirement Funds (ARFs) and Approved Minimum Retirement Funds (AMRFs), details of which can be found in leaflet IT14, "Tax Relief for Investment in a Pension and Approved Retirement Fund Options", under "Retirement Options".

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Further Information

For further information see leaflet IT14, "Tax Relief for Investment in a Pension and Approved Retirement Fund Options", or the Revenue Pensions Manual.

You may also wish to visit the Pensions Board website, www.pensionsboard.ie. The Pensions Board provides further information on PRSAs at: Personal Retirement Savings Accounts (PRSAs)

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