Retirement Planning For Company Directors – PRSA V Master Trust
- Wix Admin
- Oct 6
- 4 min read
When you are planning your retirement as a business owner or a director, there are two options that may be particularly relevant to you. These are Personal Retirement Savings Accounts (PRSA) and Master Trusts. We will breakdown the key distinctions between these two retirement products which should enable you to decide which one best suits your needs.
What is a Master Trust?
A Master Trust is a type of occupational pension scheme which allows multiple, unrelated employers to participate under one trust structure. Each employer has its own section within the trust, but there’s a single trustee board governing the overall scheme.
What is a PRSA?
A PRSA (Personal Retirement Savings Account) is a personal pension plan for business owners or individuals. You can set up and manage your own PRSA and have control over your contribution amounts and your investments. They are not subject to the same regulations as occupational pension schemes e.g. IORP II
What are the main Differences Between PRSAs and Master Trusts?
We can compare them both with a quick analysis of the key differences.
When can I access the funds?
Master Trust
Normal Retirement Age is between age 60 and 70. However, you may be eligible to access the funds in a master trust if you are over 50 years of age and have left your employer (with employer/trustee consent) or due to a disability or long-term illness.
PRSA
You can access the benefits from a PRSA from age 60. There is some flexibility with this.
If you are suffering from Ill health or a disability or are retiring early you may be able to access your benefits at age 50 or earlier in certain cases.
What happens if I die before retirement?
Master Trust
In the case of death before retirement, the trust value is limited to 4 times salary & employees contributions. If a member has left service, then the fund is seen as preserved and payable in full to their estate
PRSA
If you die before retirement and you have a PRSA, the full value will be paid to your estate
How much of my pension can I take as a lump sum?
Master Trust
You can take a lump sum up to 1.5 x final salary (provided you have at least 20 years of service with your employer and are retiring at NRA (normal retirement age). This can result in a Master Trust offering more flexibility when calculating out retirement lump sums (this could potentially exceed the 25% PRSA limit).
PRSA
You can take up to 25% of the fund as a tax-free lump sum. (capped as a lifetime maximum of €200,000 from all pension sources.)
How do Employer contributions work for Master Trust V PRSA?
Master Trust
Employer contributions are capped and still subject to maximum funding limits based on salary and service; however, this can mean a larger tax-free lump sum at retirement. Regular employer contributions into a Master Trust will receive corporation tax relief in the year of payment.
PRSA
Employer contributions are limited to employees current salary. This can be beneficial for directors who can dictate their own salary.
What about tax relief on employer contributions?
Master Trust
Regular employer contributions in a Master Trust will receive corporation tax relief in the year of payment. If an employer pays single premium contributions in a Master Trust, corporation tax relief will be spread forward to a maximum of 5 years.
PRSA
Tax relief on employer contributions to a PRSA can be claimed in the accounting period in which it was paid.
Can I do backdated pension contributions?
Master Trust
A Master Trust will allow for funding based on both salary and service, which means they will accommodate backdated pension contributions. A Master Trust might be a good option for you if you are in your 50s and you have had no prior pension provision.
PRSA
Funding for past service is not permitted.
How do I choose between a master trust & PRSA?
The answer varies here, and as with all financial decisions, you should get advice based on your own personal financial situation. However, something to consider is that if you have already built up a good level of pension savings, a PRSA might suit you. However, on the other hand, if you are late to start your pension fund and want to maximise your contributions for past service, a Master Trust could be a good option for you.
If you are planning to retire early, or want to phase your drawdowns, what you should choose will depend on how your business is structured and on what you have in mind for your retirement.
Seek Independent Financial Advice
The type of pension fund you choose will depend on your personal circumstances, and it is vital to seek independent financial advice to ensure that you are choosing an option that meets your needs and requirements.
At Citywide Financial Solutions we are here to help and would love to discuss your options with you. We are offering a FREE consultation with one of our financial advisors for all Pension clients.
(01) 513 8710
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