Personal Pension Plans (Retirement Annuity Contract)
A Retirement Annuity Contract “RAC”, is the formal name for what is normally called a personal pension. An RAC is a particular type of insurance contract approved by the Revenue. An RAC is a defined contribution pension plan. The value of the ultimate benefits payable from the contract depends on the level of contributions paid, the investment return achieved and the cost of buying the benefits.
These are very similar to PRSAs in most respects, the key differences being:
- You can have life cover as part of your personal pension but with a PRSA it has to be separate
- An individual only can contribute to a personal pension plan whereas an individual and/or employer can contribute to a PRSA
- There are no restrictions on charges with a personal pension plan whereas with Standard PRSA’s there are limits
- There are no restrictions on what funds you invest in for personal pension plans whereas there are with Standard PRSA’s
- You can only transfer from a personal pension plan to another personal pension plan or PRSA. With PRSA’s you can transfer to another PRSA or an occupational company pension scheme of which the individual is a member
- A personal pension is usually paid after the age of 60 and before the age of 75. It may also become payable before 60 for special occasions (e.g. Jockey) and if permanently incapacitated. With a PRSA you can take retirement from age 50 onwards
Should you contribute to both an RAC and a PRSA in one tax year then the limits mentioned earlier apply to your total contributions to both arrangements
Net Relevant Earnings are your Relevant Earnings reduced by:
Charges on income such as covenants, allowable interest and maintenance, which are deductible for Income Tax purposes, and Losses or capital allowances related to your Relevant Earnings.
For tax relief purposes tax relief is limited to Net Relevant Earnings up to a maximum of €115,000 currently in any tax year.
