This article has been written to assist Irish GPs approaching retirement and is particularly aimed at GPs who may wish to consider the ARF route over the annuity route, in retiring their GMS Pension Scheme benefits in conjunction with any AVCs. It particularly highlights the importance of seeking impartial advice in limiting ARF charges.
Retirement age under the GMS Scheme
The normal retirement age on the GMS scheme is 65, but a member can retire early at any age between 50 and 65 providing that they are no longer receiving capitation fees. They can also continue and receive capitation fees after age 65 and defer receiving benefits until a late retirement date (max age 70).
Retirement benefits under the GMS Scheme
When you have decided to retire and to access your retirement benefits, then the first item of consideration is always accessing your tax-free lump sum (TFLS) entitlement.
Under the main GMS Defined Contribution Scheme, you should assess basing the calculation on salary and service against taking 25% of the overall final fund value. The longer your period of scheme service the higher TFLS you can take under revenue rules.
Where a GP has completed 20 or more years of service at their Normal Retirement Age (NRA) the Revenue maximum retirement lump sum is 1.5 times GMS final salary.
If the salary and service route proves to be higher, then you may choose to take this higher TFLS and use the balance of the fund to provide a regular pension income (annuity).
However, if you choose to go the 25% TFLS route, then in addition to the option of purchasing an income for life via an annuity, the Approved Retirement Fund (ARF) option also opens up to you.
GP – Retirement Annuity Option
While the Approved Retirement Fund (ARF) tends to be the preferred option for the huge majority of GPs on retirement, it’s worth noting that the GMS scheme itself, will actually pay a pension which is usually higher than the best market annuity rates, so even though in theory it’s possible to shop around, anybody going the annuity route tends to take it from the GMS scheme. So, this option should be carefully considered.
If purchasing an annuity through the GMS Scheme, it is the intention of the GMS trustees, to increase the pension income (Annuity) in line with inflation. Two-thirds of the pension passes on death (if applicable) to the spouse.
GP – Retirement ARF Option
An ARF allows a retiring GP to reinvest their pension savings via the appointed scheme administrator Mercer, or through an impartial financial broker of their choosing.
In establishing an ARF, you must first consider your investment risk tolerance and construct an ARF investment portfolio designed to grow, whilst also providing a regular income.
The full ARF value at the time of death passes between spouses tax-free and it can also be passed on to children although dependent on their age different tax rates apply on receipt.
Under an ARF, it is a revenue requirement to take an annual income of 4% of your fund value from age 61, rising to 5% from age 71, meaning that solid investment growth is needed to counter these withdrawals in terms capital preservation.
The charges applying to your ARF are therefore paramount and with some financial advisors still applying excessive charging, our advice is to never accept a base annual management charge exceeding 0.75% PA, inclusive of ongoing support services, together with 100% net investment allocation.
It is also important to understand, that if you do go the ARF route, you can return to the annuity route down the road, but this does not apply in reverse.
Key ARF Considerations
Many GPs do not realise, that they have the power to shop around in securing an ARF and that ARF charges can significantly differ amongst providers and can be influenced by your choice of financial broker.
Before investing in an ARF there are many considerations, including;
- Retirement Age: a GP retiring at age 50 does not have to take an income under an ARF until age 61, a GP retiring at age 70 may have become more risk-adverse and prefer an annuity.
- Life Expectancy: any serious underlying health issues could impact the real value of your retirement pot, particularly under the annuity option.
- Risk Tolerance: an ARF investment although diversified in terms of asset classes, will experience some market volatility over time.
- Tax Efficiency: Maximising your tax-free lump sum/considering all income sources.
- Other Pensions: Is there also a HSE pension, or UK pensions need to be addressed.
- Other Assets: Do you have rental income or other assets to aid your long-term financial protection.
- Spouse/Dependants: Is your spouse/partner dependent on your income?
- Legacy: Are you more interested in capital preservation for your children.
Additional State Benefits
From age 66, a GP is entitled to the State pension (2024). The current full contributory State pension (subject to adequate PRSI contributions) is currently €14,419.60 pa, plus a spouse benefit (means tested) of €12,927.20 if eligible (over age 66). You can now check your PRSI contribution status online via this link
Note:
While great care has been taken in its preparation, this article is of a general nature and should not be relied on in relation to a specific issue, without taking appropriate professional financial advice.
Speak with a Financial Advisor
To arrange your free no-obligation discovery consultation by phone contact us today.
Contact: Ken O’Gorman – Director – Retirement Planning Specialist – One Quote Financial Brokers on: 01 845 0049 or email: ken@onequote.ie
Or enquire online and give us a quick outline of how we can help.
