Approved Retirement Fund
Home >Approved Retirement Fund
You have retired. Now what?
If you have some retirement funds available, you can rely on that. Depending on how big your nest egg is, you may be able to depend on it for the rest of your life. However, this does not ensure growth. And, what if your money suddenly runs out? Those are your primary considerations when adopting an Approved Retirement Fund (ARF).
What is an ARF?
An ARF allows you to invest all or part of your pension fund. This option is available only after you retire. Not to worry, you can still withdraw funds from your pension even after investing it with an ARF. Thus, you will have a means of sustenance during retirement.
An ARF, or Approved Retirement Fund, is a type of personal pension plan that allows you to take control of your retirement savings in Ireland. It’s a flexible investment vehicle that gives you the freedom to manage your retirement assets according to your individual needs and risk tolerance.
Unlike a traditional pension scheme, where your employer or a pension provider manages your funds, an ARF puts you in the driver’s seat. You can choose how to invest your retirement savings, selecting from a range of investment options, such as stocks, bonds, funds, and property.
An ARF allows retirees to invest their pension savings in a range of approved investments, such as stocks, shares, property, and bonds. The investments are managed by a financial advisor, and the retiree can withdraw funds from the ARF as needed to provide an income in retirement.
Withdrawals from an ARF are subject to income tax, USC (Universal Social Charge), and PRSI (Pay-Related Social Insurance). However, there is no tax liability on investment gains within the ARF.
Yes, an ARF can be passed on to beneficiaries upon the death of the retiree.
The minimum withdrawal amount from an ARF is 4% of the fund’s value per year, and the maximum withdrawal amount is 10% of the fund’s value per year.
To set up an ARF pension, you must first have an existing pension fund that meets the eligibility criteria. You will then need to contact a financial advisor to assist with the transfer of funds into the ARF and provide advice on investment options.
Yes, you can transfer funds from a standard pension into an ARF, provided you meet the eligibility criteria for the ARF.
Yes, there are some restrictions on what you can invest in with an ARF pension. The investments must be approved by the Revenue Commissioners and must meet certain criteria related to risk and liquidity. Your financial advisor can provide guidance on approved investment options.
Who is Eligible for an ARF?
To be eligible for an ARF in Ireland, you must meet the following criteria:
- Retirement: You must have reached the minimum retirement age, which is currently 60 years old.
- Pension Entitlement: You must have an existing pension entitlement, such as a Personal Retirement Savings Account (PRSA), a Defined Contribution (DC) pension, or a Retirement Annuity Contract (RAC).
- Minimum Funds: You must have a minimum of €20,000 in your pension pot to establish an ARF.
If you meet these requirements, you can transfer your pension savings into an ARF and start managing your retirement assets according to your financial goals and risk appetite.
Benefits of an ARF
Choosing an ARF over a traditional pension scheme offers several benefits, including:
- Flexibility: An ARF gives you the freedom to manage your retirement savings, allowing you to adjust your investment strategy as your needs and risk tolerance change over time.
- Tax Efficiency: Investments within an ARF grow tax-deferred, and withdrawals are taxed at your marginal tax rate, which can be more favorable than a traditional pension withdrawal.
- Inheritance: Upon your death, the remaining balance in your ARF can be passed on to your beneficiaries, providing an inheritance for your loved ones.
- Access to Funds: You can withdraw funds from your ARF as needed, subject to certain rules and restrictions, giving you greater control over your retirement income.
ARF Drawdowns and Taxation
One of the key features of an ARF is the ability to make withdrawals, known as drawdowns.
Here’s what you need to know about ARF drawdowns and the associated taxation:
- Minimum Drawdown: You are required to withdraw a minimum amount from your ARF each year, known as the “imputed distribution.” This minimum drawdown is currently set at 4% of the ARF’s value for individuals aged 60-70, and 5% for those aged 71 and above.
- Taxation: Withdrawals from your ARF are taxed at your marginal tax rate, just like regular income. This means that the amount you withdraw will be added to your other sources of income and taxed accordingly.
- Lump Sum Withdrawals: In addition to the minimum drawdown, you can also make lump sum withdrawals from your ARF. Up to €200,000 with a 25% limit can we taken down tax free.
It’s important to carefully plan your ARF drawdowns to optimise your tax efficiency and ensure your retirement income meets your needs.
Investing Your ARF in Ireland
As the owner of an ARF, you have the flexibility to invest your retirement savings in a wide range of assets, including:
- Stocks and shares
- Bonds
- Funds (Multi asset, Index funds etc.)
- Property
- Cash and cash equivalents
When constructing your ARF investment portfolio, it’s crucial to consider your risk tolerance, investment time horizon, and overall financial goals.
Working with a qualified financial advisor can help you create a well-diversified and risk-appropriate investment strategy for your ARF. But make sure you do your research and choose the right one for you.
Control your
pension fund
There are several reasons we encourage clients to consider an ARF. The first is that it offers you flexibility. You will not be limited to periodically withdrawing a stipulated amount from your pension fund. Another reason is more control over your pension fund.
We’ve also covered if Annuities are worth it compared to an ARF.
Conclusion
An ARF (Approved Retirement Fund) is a powerful retirement planning tool that offers Irish investors greater control and flexibility over their retirement savings.
By understanding the eligibility requirements, benefits, drawdowns, and investment options, you can make an informed decision about whether an ARF is the right choice for your retirement planning needs.
Remember, the decisions you make regarding your ARF can have significant long-term financial implications, so it’s always advisable to consult with a qualified financial advisor who can provide personalized guidance and recommendations based on your individual circumstances.