Personal pensions

A Retirement Annuity Contract (RAC) is the formal name for what is normally called a personal pension. It is a defined contribution pension plan and a particular type of insurance contract approved the revenue. The value of benefits payable depends on the amount paid in to the contract, the investment return and the cost of buying the benefits.

Tax relief:

Differences between RAC’s and PRSA’s:

• You can have life cover as part of your personal pension but with a PRSA it has to be separate.
• Only individuals can contribute to a personal pension plan, however an individual and/or employer can contribute to a PRSA.
• A personal pension plan has no restrictions regarding funds, however with standard PRSA's there are.
• You can only transfer form a personal pension plan to another personal pension or a PRSA. However with PRSA's it is possible to transfer to another PRSA or an occupations 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 in certain acceptances or if permanently incapacitated. With a PRSA you can take retirement from the age of 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, allowances, interest and maintenance. These are deducted for income tax purposes and losses or capital allowances related to your relevant earnings.