Retirement Planning should start long before you are due to retire. Factors to consider are what do you ultimately want in retirement, is it a cash lump sum to clear debts or make that dream purchase or holiday, or would you prefer the security of a regular income in retirement? When do you ideally want to be able to take retirement benefits? What is the implication of death prior to retirement and also death in retirement? What are the inheritance implications of each? Your own personal answers to these questions will help determine which pension vehicle is best for you, as options are not all the same!
Once you do reach your selected retirement age, the options available are simplified below:
Approved (Minimum) Retirement Fund (AMRF/ARF)
At retirement and after taking your TFLS, €63,500 of the balance must be invested in an Approved Minimum Retirement Fund (AMRF). The fund will grow tax free but the initial investment cannot be accessed until age 75. You can however withdraw 4% of the fund each year.
The balance will be invested in an Approved Retirement Fund (ARF). An ARF is a pot that allows you to continue to invest your money after you have taken your lump sum. You have the same access to funds as with other pensions. You will automatically receive an annual payment of 4% of your fund up to age 69 and 5% from age 70, net of tax and USC where applicable.
An ARF allows you to withdraw lump sums from the fund whenever you want. However be mindful when setting up the ARF that there may be early exit penalties imposed by the life company. You need to be sure that this suits your goals and objectives for this money. You need to make sure that the AMRF/ARF structure meets your risk profile and needs at this particular stage in life.
On your death the remaining value of the fund can be left in your Will as part of your estate. The proceeds can also be transferred into an ARF in your spouse’s/civil partner’s name.
Please read our ‘ARF Frequently Asked Questions’ document for full information on accessing your ARF funds and tax and estate planning implications.
Withdrawals from your AMRF and ARF are subject to Income Tax at your marginal rate and USC deductions under the PAYE system.
Please note that individuals taking the maximum Tax Free Lump Sum option at retirement based on their salary and service do not have the option to invest in an ARF with the balance and must instead purchase an annuity (this is assuming they do not have the option to take the balance as a taxable lump sum).
Annuity or regular pension
The annuity is a single premium policy which gives a guaranteed income for your lifetime, using money from your pension policies. The income you get is based on your age and the options you choose and of course the amount used to ‘purchase’ the annuity.
Taking out an annuity is a long term commitment and you should only enter into this contract if you are satisfied that it meets your retirement investment and income needs and circumstances.
Pension/Annuity Payments are subject to Income Tax at your marginal rate and USC deductions under the PAYE systems.
You can choose to purchase your annuity from any pension company not only the company that has your pension. This is known as an open market option where you can avail of the best rates in the market place at your particular retirement date.
Those with older pensions may have a guaranteed annuity rate included in their plan and it is important to check this before making any decisions. The guaranteed annuity rate is usually higher than current rates and therefore could greatly impact on your choice.
As the income you receive will depend on many factors we would advise you to read our Annuities – Frequently Asked Questions document for more information or contact us for a chat about your options.