Saturday 10 December 2016

The 60-second guide to... getting a PRSA if you have no pension

Published 13/11/2016 | 02:30

Be sure that you can commit to a PRSA before opening one. Photo: Stock
Be sure that you can commit to a PRSA before opening one. Photo: Stock

A type of pension called a Personal Retirement Savings Account (PRSA) is one of the easiest ways to open your own pension if your boss does not offer one or if you are self- employed.

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There are two types of PRSAs - a standard PRSA and a non-standard PRSA. The charges on a non-standard PRSA might be higher than on a standard PRSA.

With standard PRSAs, you cannot be charged more than a 1pc annual fund-management charge (a fee for the management of your pension fund), while the contribution charge (charged every time you make a contribution to your pension) cannot be higher than 5pc.

A contribution charge of 5pc is still high, however, so go through a low-cost broker if you are opening a standard PRSA. By doing so, you may avoid a contribution charge altogether, which means that your entire savings are invested into your pension from day one - rather than having a chunk of your contribution gobbled up by charges.

Be sure that you can commit to a PRSA before opening one. If you do not pay contributions for two years or more and the value of your PRSA fund is €650 or less, your PRSA provider can terminate your PRSA and give you a refund of the value of your account. You may have to pay income tax on this refund. You are free to stop, start, increase and decrease your contributions to your PRSA at any time and you cannot be charged for doing so. However, you may need to give your PRSA provider notice of any changes.

Be wary of mis-selling tactics. If you are getting a PRSA through a broker, he or she should offer you a standard as well as a non-standard PRSA.

If they propose a non-standard PRSA, make sure they give you clear reasons for doing so, as the charges are not capped on non-standard PRSAs.

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