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.