Planning for retirement is one of the most important steps in securing your financial future. In Ireland, pensions benefit from attractive tax reliefs, and navigating the different products can be confusing. Three of the most common structures you may come across are PRSAs (Personal Retirement Savings Accounts), PRBs (Personal Retirement Bonds) and ARFs (Approved Retirement Funds). The three arrangements fulfil different functions at various stages of an individual’s retirement journey.

This article explains how PRSAs, PRBs and ARFs work, their tax treatment, and how they can be used together as part of a broader wealth planning strategy.

What is a PRSA?

A Personal Retirement Savings Account (PRSA) is a flexible, tax-efficient retirement plan available to most individuals. It is designed to help you save for retirement during your working life. A PRSA can be set up whether you are self-employed or employed. One of its main advantages is flexibility, as you increase or reduce contributions at any time, freeze contributions or even easily transfer to a different provider without any penalties.

Contributions to a PRSA qualify for generous income tax relief, subject to age-related limits. For example, someone under the age of 30 can claim relief on contributions of up to 15% of earnings, while those aged 60 or over can contribute up to 40%. There is a cap on earnings of €115,000 per annum.

If you haven’t yet made your personal PRSA contribution for this year, now is the time to act. The deadline for making personal contributions for the 2024 tax year is the 19th November (clients using ROS), so making a top-up before then ensures you take full advantage of the available tax relief.

A PRSA can also receive contributions from an employer. An employer may contribute up to an amount equivalent to 100% of an employee’s annual salary — for example, an employee earning €100,000 could receive an employer contribution of up to €100,000. Any employer contribution which exceeds the employer limit will be subject to income tax as a BIK and will not be allowable as a deductible business expense for the employer.

The money in your PRSA is invested in funds of your choosing, with any growth free from Irish income tax and capital gains tax if it remains within the PRSA.

What is a PRB?

A Personal Retirement Bond (PRB), also called a Buy-Out Bond, is a single premium personal policy in your name designed to accept a transfer value from an Occupational Pension Scheme for you as a former member or a transfer from an existing PRB contract. When you retire, you can then use the proceeds of the PRB to provide retirement benefits.

Although you cannot make further contributions to the PRB, you control how the funds are invested. The PRB grows tax-free, similar to any other retirement arrangement.

At retirement, your lump sum entitlement may be taken in one of two ways: either as a lump sum of up to 25% of the fund value (as with a PRSA) or as a once-off payment of up to one and a half times final salary, depending on your years of service with your former employer. The balance of the fund, in the latter case, must be used to purchase an annuity.

You might be wondering what the advantage of transferring to a PRB is. The key benefit is flexibility, as you can access your pension anytime between age 50 and 70, rather than being restricted to your scheme’s retirement age, which is typically 65.

The maximum level of a pension lump sum that can be paid tax free is €200,000. This is a lifetime limit. Any excess over this limit up to €500,000 (25% of the current Standard Fund Threshold (SFT)) is taxable at the standard rate of income tax. Any amount over €500,000 will be subject to marginal rates of tax including PRSI and the Universal Social Charge (USC).

What is an ARF?

An Approved Retirement Fund (ARF) is a post-retirement investment vehicle. After drawing your tax-free lump sum, many people transfer the balance of their retirement savings into an ARF rather than buying an annuity.

An ARF allows you to stay invested and keep control of your pension capital, choosing how it is managed and when to withdraw funds. Withdrawals are taxed under the PAYE system, with income tax, USC and, where applicable, PRSI deducted. ARFs can also be a great estate planning tool. When the holder of an Approved Retirement Fund (ARF) dies, the treatment of the remaining fund depends on who inherits it.

If the ARF passes to a spouse or civil partner, it can be transferred into an ARF in their own name. No immediate income tax arises on this transfer, and any future withdrawals from the fund are taxed as the spouse’s own income in the usual way. Inheritance tax (CAT) does not apply between spouses or civil partners, making this the most tax-efficient outcome.

If the ARF passes to children aged 21 or over, the value of the fund is subject to a 30% income tax deduction at source. This is a final tax, meaning the children receive the net proceeds with no further Capital Acquisitions Tax (CAT) liability.

Where the ARF passes to children under the age of 21, no income tax is deducted. Instead, the fund is treated as an inheritance for CAT purposes, and normal CAT thresholds and rates apply, using the parent-to-child Group A threshold.

The ARF “imputed distribution”

Revenue requires ARF and vested PRSA holders to withdraw a minimum amount each year, known as an imputed distribution. From age 61, the minimum is 4% of the ARF’s value annually, rising to 5% from age 71. If the total value of your ARFs and vested PRSAs exceeds €2 million, the minimum is 6%. Even if you do not physically draw down the money, Revenue will tax you as if you had.

Comparing PRSAs, PRBs and ARFs

Which is Right for You?

For many people, it is not a question of choosing one product over another. You might contribute to a PRSA during your career, have a PRB from a former employer, and then consolidate both into an ARF at retirement. Together, they can provide a flexible and tax-efficient way of saving, preserving and ultimately drawing down your retirement wealth.

The right approach depends on your employment history, your appetite for investment risk, your income needs in retirement and your estate planning goals.

The most effective mix of retirement structures is guided by a solid financial plan.

Final Thoughts

PRSAs, PRBs and ARFs are central to retirement planning in Ireland, but each comes with specific rules, tax considerations and investment risks. Getting the right advice can ensure you maximise the benefits while building a retirement plan tailored to your circumstances.

At Cantor Fitzgerald Ireland, our wealth planning team can help you structure your retirement strategy, from saving during your career to managing your income and wealth in retirement. In addition, our retirement planning specialists work with you to ensure your PRSA, PRB and ARF are aligned with your goals, helping you make informed decisions about lump sums, annuities, income drawdowns and estate planning.

Written by Jean Masterson, Pensions Technical Manager, Cantor Fitzgerald Ireland