WHAT’S THE DIFFERENCE BETWEEN AN ARF AND AN ANNUITY ? Q&A from John Lowe of MoneyDoctors.ie in Irish Daily Mail 20th July 2024

Q. I am 61 years old and I have a € 275,000 pension fund. There are so many rules and regulations, it is so confusing. I am told the ARF route is the better route to go. Perhaps you could explain in simple English ? Thanks – love the column Paul – Clonmel Co Tipperary

A. Thanks Paul. Presuming you are self-employed or have your own personal pension plan, at age 60, you can first withdraw 25% as a tax free lump sum – € 68,750. The 75% balance MUST go one of two ways

• • ANNUITY
    • Fixed interest on the pension fund for life on the date you retire ( irrespective of subsequent interest rate changes, your rate never changes )
    • Usually guaranteed for the first 5 years…e.g. 75% of € 275K is € 206,250 .. at 4.5% annuity means you would receive a taxable monthly income of € 773.43 til you die
    • If you die in the 6^th year however, the insurance company keeps the entire fund…not your family or estate.
    • If you have longevity in your genes and you can avoid being run over, you will receive your monthly income until you die…
  • APPROVED RETIREMENT FUND (ARF)
    • Introduced 24 years ago, you can dictate where the funds are invested ( managed funds etc )
    • This balance goes into your ARF where you must take out 4% each year from this fund ( called imputed distribution ) 5% once you hit 71 years of age.
    • Annual management charges will be c. 1.5% and together with your imputed distribution means if you do not grow the fund by at least 5.5% each year you will eventually run out of money.
    • Whatever the balance of this fund goes to your estate should you die at any time…beneficiaries such as a  spouse have the ARF transferred to them as if it is their ARF while surviving children over the age of 21 are taxed on the ARF at 30% – under this age, they could be exempt from tax via inheritance tax threshold currently € 335,000.

Any monies taken outside of the 25% tax free lump sum is subject to income tax, PRSI ( til age 66 ) and USC….So it is as important to manage your pension funds after you retire as much as you are doing before… email for details.