What fees can you expect with an Approved Retirement Fund?
When you access your pension and set up an Approved Retirement Fund (ARF), one of the questions you should ask is:
(If you prefer to watch a 3-minute video. Joanne has this article summarised. Scroll to the end of the page)
What Is An ARF?
An Approved Retirement Fund (ARF) is a personal retirement fund whereby after taking your tax-free lump sum from your pension, you can keep your money invested after retirement (in much the same way you had your pension invested). Visit our page what is an ARF? For more detail.
“What will my ARF actually cost me?”
It is an important question because ARF fees and charges are deducted from the money you rely on to provide an income throughout retirement.
Even relatively small differences in ongoing charges can add up over many years. But cost should not be considered in isolation. Investment performance, risk, withdrawals and the advice you receive can all affect how long your ARF lasts.
So, what charges should you look for?
- ARF Allocation Rate and Set-Up Costs
The first figure to check is the allocation rate.
This tells you how much of the money you transfer actually gets invested in your ARF.
For example, if you have a €200,000 pension fund:
- 100% allocation: €200,000 is invested.
- 98% allocation: €196,000 is invested and €4,000 has effectively been taken in initial charges.
That makes allocation rate one of the first questions worth asking when comparing ARF options.
- Annual Management Charge
The Annual Management Charge (AMC) is an ongoing cost associated with managing your ARF and its investments.
The charge applicable to your ARF can vary depending on factors including:
- the ARF provider
- the investment fund or funds selected
- the type of investment strategy
- the overall value of your ARF
However, the lowest charge does not automatically mean the best value.
A low-cost investment with unsuitable risk or disappointing long-term performance may ultimately cost you more than an appropriately structured ARF with a higher charge.
The question should therefore be:
“What am I getting for the charges I am paying?”
Your adviser charge should therefore be considered alongside the service and advice being provided.
What Difference Can ARF Charges Make?
You need to consider charges over the lifetime of the ARF, rather than looking at one year’s cost.
For example, someone retiring at 65 could have an ARF invested for 20, 25 or even 30 years.
During that period your ARF may need to:
- provide a regular retirement income
- deal with market rises and falls
- meet ongoing charges
- accommodate withdrawals
- potentially leave a remaining fund for your family
An ARF remains invested and therefore carries investment and longevity risks. It does not provide the same guaranteed lifetime income as an annuity.
That is why charges, investment performance and withdrawals should be considered together.
Seven Questions to Ask About ARF Charges
If you are considering an ARF, or already have one, ask:
- What is my allocation rate?
- Are there any initial or set-up charges?
- What is the annual management charge?
- Are there additional investment or fund charges?
- What am I paying my financial adviser?
- What ongoing service do I receive for that charge?
- What is the total effect of charges on my retirement income over time?
Already Have an ARF?
If you already have an ARF, it may be worth reviewing what you are currently paying.
But don’t review the charges in isolation. You should look at:
Charges + Investment Performance + Risk + Withdrawals + Retirement Income
together.
Ultimately, the objective isn’t simply to have the cheapest ARF. It is to have an ARF structured around your circumstances, with appropriate investments and withdrawals, at a clearly understood cost.
Talk to ARF Ireland
At ARF Ireland we explain ARF fees and charges before you make a decision.
Our approach includes:
- Clear explanation of applicable charges
- Figuring out any complications or rules with your existing pension fund
- Over 20 years ARF advisory experience
- Negotiation with ARF providers on your behalf
- Calculation of potential net weekly retirement income
- Ongoing ARF reviews
If you are considering an ARF, or would simply like a second opinion on an existing ARF, talk to ARF Ireland about your options.
The information above is general in nature. Pension, investment and tax decisions should be considered in the context of your individual circumstances.
Important To Know
- The value of your Approved Retirement Fund (ARF) or Vested PRSA may fall as well as rise.
- Past performance is not a reliable guide to future performance of your funds.
- There is no guarantee that the accumulated retirement fund will provide any specific level of retirement income.