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Ready for a rush to PRSAs

We should know next month what tax changes are recommended by the Commission on Taxation.

Pension consultants are expecting the worst: that the tax-free lump sum, worth 25% of a pension fund in the case of a self –employed or director’s pension and the equivalent of 1 ½ times final salary for employees in occupational schemes will end up being taxed.  The figure of 17.5% was leaked by government sources around the time of the April mini-budget. 

For someone with a €1m pension fund, this tax raid means a potential loss of €43,750.  If the recommendation is made, pension consultants expect self-employed and company directors over 50 to rush out of their rigid retirement annuity contracts and executive pensions and into more flexible personal retirements savings accounts (PRSAs).

Unlike most pension contracts, where the money is accessible only at retirement, 60 at the earliest, PRSAs allow holders to access their savings from the age of 50 onwards.  John Mulholland of Custom House Capital, a Dublin pension consultant, says redundant employees and executives are also “quite sensibly” opting for the PRSA solution, since it does not stop them looking for, or working in, a new job even after they collect their PRSA lump sum and pension.

by Jill Kerby