What happens when I access a Pension?

When you access either a personal pension or company / occupational pension scheme or PRSA or many other types of pension you will typically be given the option of taking a tax-free lump sum from the pension, and in most cases you will be required to use the residual balance of the pension to either:

  • Purchase an Annuity or
  • Invest in an ARF / AMRF (Approved Retirement Fund / Approved Minimum Retirement Fund)

Got Questions?

For help and advice, call Joanne today.

053 9110380

Pension Access Guide

Contact ARF Ireland

If you are an existing ARF holder looking to achieve more with your ARF or if you are in the process of establishing a new ARF then please email or call us at the contact info listed below.

We can meet with you at a location of your choosing or in our offices located in Dublin, Kilkenny, Carlow & Wexford.

Or if you prefer, just fill in the adjacent form and we will call you back at a time of your convenience.

Phone: 053 9170507
Email: jfenelon@arfireland.ie

Contact ARF Ireland



    I consent to have ARF Ireland collect my name, email and phone number.

    What is an annuity?

    An annuity is a financial product whereby after taking your tax-free lump sum from your pension fund you elect to allow the insurance provider / pension provider (or another insurance provider / pension provider) to retain ownership of your residual pension fund and in return they will give you a guaranteed income for the rest of your life. Sometimes this annuity income will also allow a partial income payment for your spouse in the event of your subsequent death.

    The obvious advantage here is the security of income but the disadvantage is that you will have to live a long and healthy life before you eventually get back the value of your residual fund by way of income over your lifetime. There are various add ons to annuities such as a partial spouse payment in the event of your death but the basic concept stays the same in that purchasing an annuity involves giving up ownership of your residual pension fund in return for a guaranteed income.

    For many people the notion of giving up ownership of the pension fund allied to historically very low annuity rates leads them to ask the question – is there another option?

    The answer is Yes – you may prefer to elect to use the residual fund to invest in an ARF / AMRF – an Approved Retirement Fund / Approved Minimum Retirement Fund.

    What is an ARF / AMRF?

    If you decide against the annuity options then the alternative an ARF / AMRF.

    The ARF / AMRF option allows you to retain ownership of your funds. An ARF / AMRF is established with your current insurance provider or another provider on the market if you so wish. These funds are then invested in much the same fashion as your original pension (but we recommend a conservative investment approach at this stage of your life). You then have the option of taking income from the ARF fund as and when you see fit (subject to a minimum of 4% per annum from age 60). The obvious advantage here is deciding what income you want to take each month / year, and being able to vary the income, and also the ability to pass the unspent portion of the ARF to your next of kin in the event you pass away. The disadvantage is that you spend it to quickly and end up for example at age 80 with nothing left.

    One important item to note here is the following:

    AMRF

    There is a Revenue requirement that if you wish to establish an ARF and in circumstances whereby you do not satisfy the following criteria:

    • You do not have an existing AMRF
    • You do not have guaranteed income (state pension or other annuity income) of more than €12,700 per annum

    Then you must use the first €63,500 of your residual fund to invest in an AMRF before the balance can be placed in an ARF.

    An AMRF is pretty much the same as an ARF with the following differences:

    You can only draw 4% per annum maximum of the value of the AMRF each year until age 75. At age 75 the AMRF reverts to an ARF

     

    Can I withdraw an income from my ARF?

    You have the option of taking income from the ARF fund as and when you see fit (subject to a minimum of 4% per annum from age 60).

    Can I withdraw an income from my AMRF?

    You can only draw 4% per annum maximum of the value of the AMRF each year until age 75. At age 75 the AMRF reverts to an ARF

    What happens to my ARF / AMRF if I die?

    Any value contained in your ARF / AMRF Fund forms part of your estate on death

    I have an existing ARF that I am unhappy with, what can I do?

    There are many reasons you may be unhappy with your existing ARF. These can be:

    • Excessive Fees
    • Poor or erratic Investment Performance
    • Poor or no Communication from the ARF Provider / Insurance Company
    • Poor or No Communication from your Financial Advisor
    • Lack of expertise from your Financial Advisor

    There is however a solution to most of these issues. For example if you are happy with your ARF but unhappy with your Financial Advisor then you can appoint a new Advisor to deal with your ARF. If you are unhappy with your ARF but happy with your advisor then you can (in most cases) transfer your ARF assets to another insurance / ARF company.

    What are the pros and cons of Annuity vs ARF / AMRF?

    Consideration ARF Annuity
    Certainty Significant uncertainty – life expectancy and investment return result in uncertainty of income. Perfect certainty – retiree knows exactly what they will receive each year they are alive.
    Flexibility Very flexible in terms of investment choices, drawdown amount and ARF provider and can even convert to annuity at later stage. None – decision made at point of retirement must be “lived with”.
    Investment Risk Significant – onus on retiree / adviser to pick funds to maintain fund and standard of living. Potential to generate higher income with good investment returns. None for the retiree.
    Growth Potential Opportunity to achieve investment returns gives the chance to grow initial fund and increase drawdown potential. None.
    Inflation risk Will depend on investment choices – if investing in real assets, inflation risk should be greatly reduced. Significant – higher than expected inflation will greatly reduce purchasing power. Inflation – linked annuities may be expensive and / or undershoot actual inflation rate.
    Inheritance Options Good options available – ARF on death can be passed to spouse / children in tax-efficient manner. Limited – spouse / dependent ’s and guarantee period pension can be added at point of purchase but reduces initial annuity payments. Payments cease on death.
    Tax Income Tax paid on drawdown from fund. Income Tax paid on annuity payments.
    Ongoing management Need to choose investment mix and income amount carefully, will likely need ongoing advice, which will need to be paid for. None for the retiree.
    Value for Money Depends on quality of ongoing advice – does it produce returns in excess of cost of advice and ahead of implicit annuity returns? Perceived as poor value but reflects returns in the markets and estimated average longevity. Removal of investment and longevity risk from retiree has significant value for money.
    Peace of mind Depends whether retiree is comfortable with the risk level being taken on investment and longevity. Certainty brings peace of mind but the opportunity cost of that certainty could be significant.
    Complexity Challenge/requirement to continually review appetite for risk and understand investment risk profile, charges and regulatory requirements. Ability to understand and capacity. for decision making may reduce with age. Need to understand escalation, guarantee period, spouse’s death at point of retirement terms when choosing an annuity.
    Psychological Client can see and relate to their wealth more easily with a tangible investment in an ARF available to them – annual statements etc. No perceived loss at hand over of assets. Difficult to assess the value of the future income stream. Perceived loss of assets on handing over a large lump sum from their “Account” to insurer / annuity provider.
    Fiscal Regime Subject to variations in deemed disposal regime, inheritance tax etc. into future which may or may not suit. More exposed to new regulation. Less exposed to future changes aside from income tax changes.
    Tax Efficiency Ability to take a flexible income (after covering the deemed drawdown) to manage income tax liability in co-ordination with other income/ assets Fixed income with little flexibility to manage income received in coordination with other income/assets.
    Timing Risk Have the flexibility to make investment decision based on market conditions. No flexibility as annuity decision made at a point in time.

    Contact ARF Ireland

    If you are an existing ARF holder looking to achieve more with your ARF or if you are in the process of establishing a new ARF then please email or call us at the contact info listed below.

    We can meet with you at a location of your choosing or in our offices located in Dublin, Kilkenny, Carlow & Wexford.

    Phone: 053 9170507
    Email: jfenelon@arfireland.ie

    Contact ARF Ireland