Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

LEFT a full-time job a few years ago and be­came self-em­ployed. I set up a stan­dard PRSA a cou­ple of years ago. How­ever, I re­cently lost a ma­jor con­tract and so will strug­gle to pay any­thing into my PRSA this year. I will have to ei­ther freeze my con­tri­bu­tions un­til things im­prove for me fi­nan­cially — or else come out of the PRSA al­to­gether. I’m a bit wor­ried about the im­pact which charges would have on my PRSA if I froze con­tri­bu­tions for a while. Would the charges on the PRSA eat into the value of the fund more quickly if I am no longer pay­ing con­tri­bu­tions into my PRSA? Is it pos­si­ble to close the PRSA al­to­gether and if so, would it be wise to do so? Gary, Killester, Dublin 5 THERE are two types of Per­sonal Re­tire­ment Sav­ings Ac­count (PRSA): a stan­dard PRSA and a non-stan­dard PRSA. With both, you have the flex­i­bil­ity to close the PRSA or stop and start your con­tri­bu­tions when­ever you wish and there is nor­mally no penalty to do this — so I would leave it in place.

You say your PRSA is a stan­dard PRSA so this means that your an­nual man­age­ment charges are fixed at 1pc per year. The im­pact of this charge on the value of your PRSA de­pends largely on the fund you have cho­sen. For ex­am­ple, if you are in­vested in a very low-risk low-re­turn cash fund (sim­i­lar to a low-in­ter­est de­posit ac­count) and the re­turns in this fund were less than the 1pc an­nual man­age­ment charge, then you would be los­ing money. If how­ever, you are in­vested in a fund which has the abil­ity to re­turn a larger long-term re­turn, then you should see your PRSA value grow.

PRSAS are also por­ta­ble so if you ever de­cided to go back into em­ploy­ment, you can move your PRSA to your new em­ployer’s pen­sion scheme. In the mean­time, your PRSA funds will con­tinue to grow (de­pend­ing on your fund choice) tax-free un­til you re­tire. You can nor­mally draw down your PRSA funds from the age of 60 to age 75. You may also be able to take your ben­e­fits ear­lier — for ex­am­ple, if you re­tire from em­ploy­ment at the age of 50 or over, or if you be­come se­ri­ously ill or dis­abled. At that stage, you can nor­mally ac­cess 25pc of the value as a tax-free lump sum and draw down a pen­sion in­come in re­tire­ment from the bal­ance.

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