Nearing Retirement
Pension options tailored to your needs when retiring soon.
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Options to consider
 Your tax-free lump sum
 Annuities
 AMRF & ARF
 Best time and procedure to drawdown your pension
How can benefits be taken?
1
First 25%
Lump sum – Tax free up to €200,000
2
Next €63,500
- Approved Minimum Retirement Fund (AMRF)
- Annuity
3
Balance
- Taxable Lump Sum
- Approved Retirement Fund
- Purchase Annuity
Tax free lump sum on Retirement
First €200,000
Tax Free Lump Sum
Next €300,000
Subject to standard rate income tax
Any other Lump Sums
Subject to higher rate income tax
When retirement benefits are taken, the individual can first take up to 25% of the fund as a lump sum, which is tax free subject to a limit of €200,000 on all tax-free lump sums taken by that individual from all pension arrangements since 7th December 2005.
The Balance can then be used for –
- Buying an Annuity
- Investing in an ARF or AMRF
- Taking a taxed lump sum
Annuities
An annuity is a single premium insurance policy where, in return for a lump sum payment, the selected life insurance company guarantees to pay a specified level of regular income for entire life of the individual insured by the policy.
A single life annuity ceases on the death of that individual, apart from outstanding payments under the guarantee period (if applicable).
An annuity can provide a continuing payment of part or all of the annuity to a nominated person, typically a spouse, following the individual’s death; this is called a joint life annuity or an annuity with a reversion, i.e. part or all of the annuity ‘reverts’ to another individual following the death of the individual who took out the annuity.
E.g. James is now 65 years old and a RAC fund of €200,000. Taking €50,000 lump sum, purchasing an annuity for €150,000. This guarantees €6000 for the rest of his life, with a guarantee of 5 years. If James dies 3 years later, €6000 per year will be paid to James’ estate for two years. Or pay the outstanding to his estate.
Approved Retirement Fund (ARF)
An Approved Retirement Fund is a personal investment account into which an individual can (in certain circumstances) transfer part of their retirement fund, instead of using those funds to buy an annuity or take as a taxable lump sum. The balance of an ARF on death is paid to the holder’s estate.
The ARF owner can withdraw funds from the ARF whenever required. There is no maximum rate of draw down from an ARF. An individual can withdraw the full balance in an ARF at any time.
Any withdrawal made during the lifetime of the ARF holder is subject to income tax under PAYE, USC and Class S PRSI (if under 66)
ARF Offers:
- Tax free investment returns.
- Option of lower annual taxable withdrawals.
- Ability to pass the balance of the ARF to a spouse’s ARF without any immediate tax charge.
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Approved Minimum Retirement Fund (AMRF)
This is an investment fund which grows entirely tax free. Up to age 75, you can opt to (but is not obliged to) take an annual taxable withdrawal of up to 4% of the value of the AMRF.
At age 75, the AMRF turns into an Approved Retirement Fund (ARF), or if earlier.. the individual starts to receive pension income payable for his or her lifetime of at least €12,700 per year, or dies.
Your Questions Answered
An pension plan is a longterm investment savings plan that helps you put something aside for your retirement. A pension plan enables you to pay regular tax-friendly installments or move one-off lump sums into a fund available to you on retirement. The amounts saved into your pension are called ‘contributions’
We’re living longer than previous generations. Upon retirement, on average we will have 20-30 years of retirement. A pension plan will make sure you’re financially sound for these years. Whether you wish to travel, retire to the country, or spend time with your children & grandchildren.
As soon as possible. The money that you pay into your pension grows over time. It’s quite simply Time x Money. The sooner you start paying in; the more money will be available to you upon retirement.
The amount you will receive per month entirely depends on how much you’re willing to pay per month, the length of time you’ve been making contributions, the type of pension plan and its investment return. You can also choose to receive a lump sum upon retirement or not.
As of today, the State Contributory Pension is about €240 per week. For most people, during their 20-30 years of retirement, this simply isn’t enough. When you pay into a pension plan, you will receive both the state pension (If available to you) and your Pension Plan.
Tax relief reduces the actual cost of your pension. You do not have to pay tax on money that you put into a personal pension (This falls within the limits set out below). This is calculated at the highest rate of tax you pay (Currently 20% / 40%)
Example:
Monthly contribution = €100
Tax Relief (40%) = €40
Cost to you = €60
If you have to retire because of medical reasons and you get Revenue approval, you can receive your benefits from your Pension immediately.
If you unfortunately pass away before you retire, your Pension will be paid to your estate.
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