Once you take the tax-free lump sum from your pension, you can invest the remainder of your pension (typically 75% of your pension) into an Approved Retirement Fund (ARF). Your ARF can then pay you a monthly pension income and you can also take lump sums from your ARF, if you need to do so.
The income that you receive from an Approved Retirement Fund (ARF) is treated as taxable income for Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) purposes. Each time that a payment is made to you from your ARF, you will receive a corresponding payslip which will show you the gross payment, the deductions and the net payment going to your personal bank account. This information will then be reflected in your Revenue record, which is useful when, or if, you submit an income tax return at the end of the year.
Here is a brief breakdown of the key tax implications:
- Income Tax: Your drawdowns are subject to Income Tax at your marginal rate. This can be the standard rate (currently 20%) or the higher rate (currently 40%), depending on your tax credits and your overall income level for the year.
- Universal Social Charge (USC): ARF drawdowns are subject to USC. The rates and thresholds for USC vary depending on your total level of income.
- Pay Related Social Insurance (PRSI): If you are receiving the state pension (contributory) from age 66, then your PRSI will cease at age 66. Otherwise PRSI will cease at age 70.
In simple terms: Any money you take out of your ARF, is added to your total income for the year and taxed accordingly.
We can give you advice, tailored to your specific circumstances, to ensure that you manage your drawdowns in the most tax-efficient way.
Feel free to contact me on 01 5267770.
Jim Doyle
Owner & Director
ACMA, QFA, CGMA
Jim Doyle brings over 30 years of experience in financial and client advisory services. A qualified Accountant and Financial & Investment Advisor, Jim has built a career grounded in trust, expertise, and a deep commitment to client success.
