How to Maximise ARF Investments – Considerations

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How to maximise ARF investments
How to maximise ARF investments

This article is all about how to maximise ARF investments, or in other words how to get the most out of your ARF, but before starting to explain this, let us backtrack just a little.

There is much to understand and consider in choosing to take your retirement benefits in the form of a tax-free lump sum and a regular retirement income.

One option for people with defined contribution pension plans is to purchase a retirement annuity, but this relies on prevailing high-interest rates and carries the risk of renouncing your hard-earned pension fund to an insurance company in death.

Thankfully back in 1999, the then Minster for Finance introduced the Approved Retirement Fund (ARF) to allow pension fund holders access to tax-free cash and to re-invest their funds, take an income, and pass on the residue of the fund to their family, or other beneficiaries on their demise.

When can you set up an ARF?

In general, monies held in a pension from previous employment or under an Executive Pension Plan can be accessed from age 50, meaning that you can avail of your tax-free lump sum and leave the balance to grow tax-free in an ARF until age 61 when you must start drawing a minimum income of 4% per annum.

Pension plans funded during periods of self-employment or current employment can be accessed from age 60, with the same tax-free cash and ARF options. It is also important to understand that when setting up an ARF, you can retain the option to continue working.

Finally, it is also worth mentioning that ARF retirement options are also available to holders of accrued AVC funds, where a pension adjustment order grants it, or where benefits are transferred to an ARF on the death-in-service of a member of an occupational pension scheme.

How to Maximise ARF Investments

The key to getting the most out of an ARF is to put it to maximum use in terms of income level, income duration, and income tax efficiency, and the key to supporting this is the careful consideration and selection of the underlying ARF investments i.e. the assets held and the cost of holding those assets.

Income Duration

ARF Asset

An ARF is designed to last at least 22 years, from age 61 to age 83 assuming only the investment management charge was met by investment returns, based on the minimum withdrawal rates of 4% per annum from age 61, increasing to 5% from age 71. However, you may need to withdraw more before the state pension also kicks in, plus you will need to account for inflation.

The ideal retirement income is 2/3rds of your final salary at retirement, but it would be our view that most people, if unincumbered by mortgage or other debt, can live comfortability on a gross income of 50%.

Other Assets

Some people will have sufficiently large ARFs to live off the minimum distribution rate, together with the state pension, whilst others may have rental or other income. Others still may plan to downsize from the family home to realize additional cash, everyone is different.

Tax Planning

Your Income

One of the pluses of an ARF is that it enjoys tax-free investment growth, and it is only the withdrawals that are subject to PAYE. As of January 2024, you can earn up to €42,000 PA and stay in the lower 20% tax bracket resulting in a net income of just over €3,000 PM.

Beneficiaries Income

Another big bonus of holding an ARF over a retirement annuity is that on your demise, your spouse can take it over, free from any inheritance or other taxes. Just like for you, PAYE is only payable on the withdrawals.

If, however, it ends up being the case that your children will inherit your ARF, benefits payable to a child over the age of twenty-one, are subject to income tax at a rate of 30%, regardless of the size of the fund, with no other taxes payable.

Underlying Investment

The key to holding the right ARF assets is diversification, simplicity, and most importantly control of the charges.

When speaking with any advisor they will talk about investment risk levels and ESG preference, but what is key to understand is the following:

  • To protect the value of your ARF for the long run, you will need to invest in either ESMA 4 medium risk, multi-asset funds or a combination of ESMA 3 and ESMA 4 funds. In layman’s terms, these may be referred to as Balanced Funds, with a low to medium risk level.
  • Overcomplicating it will only prove time-consuming and expensive, for a single well-chosen ARF product provider, look to: New Ireland, Zurich, etc.
  • High charges will suck the life out of your ARF and remember every basis point saved, means a greater return on your chosen funds’ performance. A maximum annual management charge (AMC) of up to 1% should be agreed upon and less again for investable funds exceeding 1M.
  • Although passive funds are cheaper combining active funds helps manage volatility. This means investing across active and passive, growth and value, cognisant of recency basis and broader behavioural basis, adjusted to individual risk tolerance, with a level of downsize protection and currency hedging.


The big ARF Questions

Is it possible to maintain the original value of my ARF despite withdrawals and charges?

  • Whilst you can’t guarantee the actual lifespan of your ARF, it is possible to put investment strategies in place to aim to retain its value, if only allowing for minimum withdrawal levels and charges. The value of your ARF will rise and fall as a result of market performance, meaning that you would need to achieve a consistent net return annualised return of 5%, or higher when accounting for inflation. Key to protecting your fund value is a well-constructed low-cost ARF portfolio, that is reviewed annually.


If I already have an ARF that I’m not happy with, can I switch providers?

  • If you’re not happy with the investment performance of your ARF, the first thing to do is to have another broker audit its charges and then review its underlying funds. More often than not, we find ARF holders being overcharged and under-supported, and unfortunately being recommended the wrong overly volatile funds, with poor long-term alpha performance. You can most definitely change ARF providers, but the first thing to do is transfer the broker agency to amend the investment strategy, and then once any early exit charges have elapsed you can move provider.


How I can help

Ken O’Gorman – QFA, Chartered Banker, SIA – Retirement Specialist

All of my ARF clients receive a personally tailored approach that factors in their retirement goals, personal circumstances, and risk tolerance, but also ensures fair value under a carefully monitored ARF portfolio.

To arrange your free no no-obligation consultation by phone, video conference, or in-person contact us today, call: 01 845 0049 or email me directly:

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