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Company Pension Scheme

  • 01-11-2017 12:25pm
    #1
    burly
    Registered Users Posts: 314 ✭✭


    Hi,

    Been working in company for about 3 years, and I am thinking of hopping on the company pension scheme wagon to avail of tax relief on an upcoming bonus.

    Is it a no-brainer to sign up to this, or would I be better off with my own personal PRSA? What is the difference between a PRSA and an in-company scheme? Is it just that the tax relief comes out of your gross pay, instead of having to claim it back?

    Meeting the company's pension advisor later today, and would be grateful if anyone in the know could suggest some key questions to ask.


Comments

  • #2
    Peregrinus
    Registered Users, Registered Users 2 Posts: 26,550 ✭✭✭✭Peregrinus


    99 times out of a hundred the company pension scheme will be better, and frequently much better, than a PRSA. There are two main reasons for this.

    First, it's frequently the case that the employer will contribute to the company scheme (if you do) but not to a PRSA. That provides an immediate boost to your contribution when you pay into the company scheme that you wont get if you pay into your own PRSA.

    Secondly, as the purchaser of a PRSA you're a price-taker; you can't negotiate with the bank/insurance company about the level of fees, and the amount you bring in is relatively trivial, so they're not going to cut their fees to attract your business. Employer-sponsored schemes have more negotiating muscle and are more desirable customers, and on average they get lower fees. In the long term, that makes a huge difference to how much accumulates for you in the fund.

    There is a third factor, which is that a company pension scheme may come with insurance, etc, that is much cheaper than anything you could arrange for yourself, or even insurance that you couldn't arrange for yourself on any terms (e.g. if you have a medical issue that would scare off insurers).

    'Course, the fact that one or more of these things is true of many company schemes doesn't mean that it's true of your company pension scheme, so these are the things you need to ask about.

    - Company contributions: How much? And are they available for the company pension scheme and the PRSA alike?

    - Charges: How much deducted from your contribution on the way in? And how much deducted from your fund each year for management, etc? (You can get similar information about your PRSA from the PRSA provider, and then compare the two answers)

    - Insurance: What, if any, do you get by joining the company scheme?

    There are other points on whicyh a company scheme and a PRSA may differ - e.g. the range of investment choices open to you - but the impact of those three factors is likely to outweigh the impact of all other factors combined.


  • #3
    Squall Leonhart
    Closed Accounts Posts: 1,794 ✭✭✭Squall Leonhart


    Would suggest asking about what charges are on your pension account, i.e., if you make a €100 contribution, how much of that goes to your pension and how much of it goes to the pension provider.

    Also, while you can have a PRSA and pay into it outside of work and claim tax back outside of work (I did this for a while), you could also apply to Revenue for an increase in tax credits due to PRSA payments (when you open your PRSA you will be given a PRSA Certificate by the provider, which you in turn give to Revenue). Your take home pay will then factor in the tax relief from your pension.

    If you are paying tax on the 20% rate, a 100 euro contribution will cost you 80 euro.

    If you are paying tax on the 40% rate, a 100 euro contribution will cost you 60 euro.


  • #4
    testicles
    Closed Accounts Posts: 1,198 ✭✭✭testicles


    This post has been deleted.


  • #5
    Peregrinus
    Registered Users, Registered Users 2 Posts: 26,550 ✭✭✭✭Peregrinus


    Squall Leonhart wrote: »
    . . . Also, while you can have a PRSA and pay into it outside of work and claim tax back outside of work (I did this for a while), you could also apply to Revenue for an increase in tax credits due to PRSA payments (when you open your PRSA you will be given a PRSA Certificate by the provider, which you in turn give to Revenue).

    If you are paying tax on the 20% rate, a 100 euro contribution will cost you 80 euro.

    If you are paying tax on the 40% rate, a 100 euro contribution will cost you 60 euro.
    Tax deductibility of contributions to a company pension scheme and a PRSA is the same, so this is not a point of difference between them.


  • #6
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,725 Mod ✭✭✭✭Henry Ford III


    Peregrinus wrote: »
    ...First, it's frequently the case that the employer will contribute to the company scheme (if you do) but not to a PRSA.....

    Employer always contributes. Minimum of 10% of the ordinary premium. Employer also pays any (optional) DIS/PHI costs.

    p.s. Early retirement. Don't forget that. It's important.


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