Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 2A

Personal retirement savings accounts

Overview

This Chapter provides for relief from tax on contributions made by an individual, engaged in a trade or profession or holding an employment, under a Personal Retirement Savings Account (PRSA) contract.

To qualify for relief, payments must be made under a PRSA contract, which complies with the conditions of Part X (inserted by the Pensions (Amendment) Act, 2002) of the Pensions Act, 1990, and is approved by the Revenue Commissioners. Relief is available for contributions made in a year of assessment up to, the greater of –

  1. €1,525, or
  2. a specified percentage of the individual’s “net relevant earnings”, subject to an “earnings limit” of €115,000 as provided for in section 790A, for that year as follows –

Age

Percentage

under 30

15

30 to 39

20

40 to 49

25

50 to 54

30

55 to 59

35

60 and over

40

The 30% rate also applies to any individual, below age 55, whose income is derived wholly or mainly from certain sporting activities.

Contributions to a PRSA and a Retirement Annuity Contract (RAC) and, with effect from 4 December 2002, contributions to an approved or statutory scheme will be aggregated when calculating the maximum tax relief.

Employees who are members of an occupational pension scheme may only use a PRSA as a vehicle for making additional voluntary contributions (AVCs). The minimum allowable limit of €1,525 for PRSA contributions does not apply in respect of PRSA AVCs.

Transfers of funds from an RAC to a PRSA are allowed. Transfers of funds from an occupational pension scheme to a PRSA are allowed where an individual was a member of the scheme for 15 years or less. The value of AVC contributions to an occupational pension scheme may be transferred without this restriction.

Where the PRSA contributor dies pre-retirement, the PRSA fund may pass in its entirety to the estate of the deceased person, free of income tax. Where the contributor dies after benefits have commenced, the assets in the PRSA are treated in the same manner as assets in an Approved Retirement Fund (ARF).

The income arising from the investment of PRSA contributions is exempt from tax.

Please also refer to the guidance notes for section 784C which provide details of the reduced specified income and “set aside” amount requirements for individuals who exercise ARF options on or after 27 March 2013 and which also describe the measures introduced by section 17(6) of the Finance Act 2013 to ensure that individuals who exercised an ARF option during the period 6 February 2011 to 26 March 2013, i.e. prior to the reduction in the amount of those requirements, are not disadvantaged.

Please also refer to the guidance notes for section 784C which provide details of the reduced specified income and “set aside” amount requirements for individuals who exercise ARF options on or after 27 March 2013 and which also describe the measures introduced by section 17(6) of the Finance Act 2013 to ensure that individuals who exercised an ARF option during the period 6 February 2011 to 26 March 2013, i.e. prior to the reduction in the amount of those requirements, are not disadvantaged.

A PRSA which does not vest (i.e. mature or come into payment) by the date of an individual’s 75th birthday is deemed to vest (i.e. it becomes a “vested PRSA”) on that date. However, benefits may not be taken from a PRSA that vests in this manner. Where the individual is 75 before 25 December 2016 (i.e. the date on which Finance Act 2016 was passed), the PRSA is deemed to vest on 25 December 2016, and the transitional measures in section 787K(2D) as regards the taking of benefits apply.

The vesting of a PRSA in the manner described above, is a Benefit Crystallisation Event for the purposes of Chapter 2C of Part 30 and the PRSA comes within the imputed distribution provisions of section 790D. In addition, any assets in the PRSA when the contributor dies are treated as if they were assets of an ARF.

Similar vesting provisions apply to RACs (see Chapter 2 of Part 30).

787A Interpretation and supplemental

(1)additional voluntary PRSA contributions” means contributions made by a member of a retirement benefits scheme which are made under a rule of the scheme which allows members to make voluntary contributions to a PRSA or are made under a separately arranged scheme approved by Revenue which is associated with the retirements benefits scheme and which allows members of the retirement benefits scheme to make voluntary contributions to a PRSA.

approved scheme” has the same meaning as in Chapter 1 (see section 770) of Part 30.

approved retirement fund” and “approved minimum retirement fund” have the same meanings as in sections 784A and 784C, respectively.

contract of employment” means contract of service or apprenticeship or a contract with an employment agency to do work for a third party.

contributor” means an individual who enters into a PRSA contract with a PRSA provider including where all contributions are made by the individual’s employer.

director” is a member of the board of directors of a company, a sole director of a company, or where the affairs of a company are managed by the members, such a member.

distribution” has the same meaning as in the Corporation Tax Acts (see section 4).

earnings limit” shall be construed in accordance with section 790A.

employee” means a person of any age employed under a contract of employment and references to an employee in relation to an employer are references to an employee employed by that employer. Persons holding office under or in the service of the State (including civil servants) are deemed to be employed by the State or Government as the case may be. Similarly, officers and servants of local authorities, harbour authorities, the Health Service Executive and education and training boards are deemed to be employees of those bodies as the case may be. In the case of a company, the term includes a director or other officer of the company and any other person taking part in the company’s management.

employer” means the person with whom an employee has entered into, or for whom he or she works under, a contract of employment but where the employee is employed through an employment agency the employer is the person who is liable to pay the employee’s wages.

market value” is to be construed in accordance with section 548.

PPS Number” means a person’s personal public service number.

Personal Retirement Savings Account” means a personal retirement savings account established by a contributor with a PRSA provider under a PRSA contract.

PRSA administrator” means the PRSA provider or a person to whom the administration of the PRSA has been delegated under Part X of the Pensions Act, 1990 or a person appointed under section 787G(5).

PRSA assets” are the assets held in a PRSA including the value of contributions made by the contributor’s employer.

PRSA contract” is a contract entered into between a PRSA provider and a contributor in respect of a PRSA product.

PRSA contribution” means a contribution within Part X of the Pensions Act, 1990.

PRSA product” is a PRSA product within the meaning of Part X of the Pensions Act, 1990 that stands approved under section 94 of that Act.

PRSA provider” has the same meaning as in Part X of the Pensions Act, 1990.

relevant payment” means any payment, including a distribution, made by reason of rights arising as a result of a PRSA contract and includes any annuity payable by reason of those rights.

retirement annuity contract” means a contract approved under Chapter 2 of Part 30.

retirement benefits scheme” has the same meaning as in Chapter 1 (see section 771) of Part 30.

specified individual” means an individual whose relevant earnings are derived wholly or mainly from an occupation or profession specified in Schedule 23A.

statutory scheme” has the same meaning as in Chapter 1 (see section 770) of Part 30.

(2) Where any other word or expression used in Chapter 2A is also used in Part X of the Pensions Act, 1990, it will, except where the context otherwise requires, have the same meaning in the Chapter as it has in that Part.

Relevant Date: Finance Act 2020