ARF – FAQs

ARF FAQs can include everything from is it a better option than a regular pension payment? to how do I get the best ARF deal? and what happens to my ARF when I die? Here we cover all your most frequently asked questions, to help ensure that you choose the right ARF investment to suit you!

ARF FAQs
ARF FAQs top-tips


ARF FAQs top-tips

  1. Fund manager charges can have a huge effect on your ARF fund’s value over time, always shop around and never take the first recommendation received.
  2. Always choose multi-asset funds which don’t put all your monies in the one basket.
  3. It’s wise to choose low to medium risk funds and to be aware that you can move between funds if and when you require and usually free of charge.

 

 

Approved Retirement Fund – ARF FAQs

What is an ARF?

An Approved Retirement Fund or ARF is a post-retirement investment plan, where you can invest all or part of your pension fund after taking your tax-free lump sum on pension plan drawdown, including early retirement. You can withdraw from it regularly to give yourself an income, on which you pay income tax, PRSI, and Universal Social Charge (USC). Any money left in the fund after your death can be left to your next of kin.

Who can take out an ARF?

ARF is available to members of an Occupational Scheme (assuming scheme rules allow) and individuals that hold a Personal Pension, Personal Retirement Savings Account (PRSA), or Retirement Bond and have reached Normal Retirement Age or have taken Early Retirement.

How is an ARF structured?

Before you can invest in an ARF, you must satisfy the income test. The test is that you must have a guaranteed pension annual income equal to €12,700 as at January 2016. This includes a pension or annuity that is guaranteed to be payable for the rest of your life, including any State guaranteed pension. If you do not satisfy the income test you can still purchase an ARF on the condition that you also purchase an Approved Minimum Retirement Fund (AMRF).

The test does not apply to individuals aged 75 or over, who may invest in an ARF without satisfying the guaranteed income or AMRF requirements.

What is an AMRF?

An AMRF is similar to an ARF except that the capital invested in the AMRF is not subject to an imputed distribution (please see ‘Imputed Distributions’ below) until the individual is aged 75 years.

The amount which must be invested in the AMRF is €63,500 (as at January 2016) of your remaining fund (or the entire fund if it is less).

You should note that when you reach the age of 75, or upon death, the AMRF automatically converts into an ARF.

The AMRF holder can access up to 4% of the value of the assets each year, irrespective of age as a once-off withdrawal, subject to PAYE. Any distribution that is taken from the AMRF can be used to reduce the minimum distribution amount from the ARF assets in that year.

Can I contribute to my ARF?

No. An ARF is a post-retirement product that is designed to provide an income for you in retirement. It can only accept transfers from existing pension arrangements.

Can I transfer in other pension benefits?

The only assets which can be transferred into your ARF/AMRF are:

The value of retirement benefits not taken as a lump sum at retirement, arising from a defined contribution occupational pension scheme or defined benefit scheme (subject to certain restrictions).

The value of Additional Voluntary Contributions (‘AVCs’) at retirement not taken as a lump sum.

The value of a Retirement Annuity Contract (‘RAC’) or Personal Retirement Savings Account (‘PRSA’) or Retirement Bond not taken as a lump sum.

The value of assets transferred from another ARF/ARMF held by you (or your deceased spouse).

The value of pension assets transferred to you under the terms of a court order.

When and how can I make withdrawals from my ARF?

There is a minimum income you must take from your ARF each year, which is dependent on your age. If your ARF is under €2 million, you must withdraw:

4% of the value of your fund, if you are over 60.
5% of the value of your fund, if you are over 70.

If your ARF exceeds €2 million, you must take out 6% of the value of your fund each year.

Once you are over age 60 and have taken your minimum withdrawal, you can take any additional income as you need it. If you are under age 60 there are no minimum nor maximum withdrawal limits.

An AMRF is treated slightly differently. The maximum income you can take is 4% of your AMRF each year.

This imputed distribution is applicable to ARF holders who are 60 or over for the full tax year. Actual distributions made during the year from the ARF may be deducted from the imputed distribution to arrive at the net imputed amount, if any, to be regarded as a distribution.

What happens a ARF on death?

Your ARF can pass to your spouse tax-free! If left to your children and they are aged under 21 inheritance tax at 30% may be payable on any benefit above their CAT tax-free threshold. If left to your children aged over 21 then 30% income tax is charged.

Can I exit my existing ARF if I'm not happy

Yes, the full current value of your ARF is available to transfer to another ARF provider. Depending on who that provider is and how long you are with that provider an exit charge may occur and usually in the first 4-5 years.

What are the typical ARF charges?

    Typically a broker or advisor may charge a once-off set-up fee, especially if more than one source of transfer is occurring. After which, a single annual charge will be levied against your total ongoing ARF fund value known as the AMC or annual management charge.

    It pays to shop around as AMC’s typically vary between 1.00% and 1.5% PA depending on your choice of funds and choice of a financial advisor.