Approved Retirement Funds Advice Donegal
what are they and how do they work?
What is an Approved Retirement Fund (ARF)
When you retire, you may have a decision to make on how you wish to access your pension fund.
Do you go with an Annuity, Approved Retirement Funds or an mixture of the 2.
You may have the option to Invest in an ARF if you are self-employed, a company director, or if you have a PRSA. If you are a member of a defined contribution employer pension plan, you may also have this option, depending on the rules of your own pension plan
If you would like to have control over how your retirement fund is managed and what income you would like to help fund your lifestyle in retirement than an ARF (Approved Retirement Fund) might be the best option for you.
What is an ARF?
An Approved Retirement Fund (ARF) is a personal retirement fund where you can keep your money invested after retirement, as a lump sum. You can withdraw from it regularly to give yourself an income, however you will pay income tax, PRSI and Universal Social Charge (USC) on any withdrawals
Any money left in the fund after your death can be left to your next of kin.
Investing in an ARF may be an option if you are self-employed, a proprietary director, or if you have a PRSA. If you are a member of a defined contribution employer pension plan, you may also have this option, depending on the rules of your own pension plan
How does an ARF work?
An ARF allows you to invests in various assets such as shares, property, bonds and cash so the growth of your ARF fund depends on the performance of the assets it is invested in.
ARFs are designed to grow in value but your original investment is not guaranteed. An your ARF can run out during your lifetime if:
- You make large, regular withdrawals from it
- Investment returns are less than expected
- You live longer than expected.
You can decide on the type of funds you would like to invest in, and the amount of risk you’re comfortable with. When deciding on your risk level, always seek independent advice.
It is worth remembering that since your pension fund is still invested, its value may go down as well as up.
Advantages of ARFs
- You keep control of your retirement money. This may be important if you are in poor health or want to leave this money to your dependants after you die.
- You have flexibility in terms of when and how much income you draw from your ARF in retirement.
- *You can choose how to invest your ARF and select the type of investments that suit your needs and attitude to risk.Seek advice on this one.
- *Any growth in your ARF is tax-free, but withdrawals from an ARF are taxable
- You can always use your ARF to buy an annuity later on, if you decide that you need a secure, regular income. By waiting, you may be able to get a higher annuity rate later on for the same lump sum, as you will be older.
*Please Note: if you do not withdraw any money from your fund, Revenue will assume that you have withdrawn 4% each year (for those under 71 years and with funds of under €2 million).
You will be charged income tax and USC on that amount. With all providers it is now mandatory to take this withdrawal and is payable to you annually, that is, if you are not already withdrawing more than 4%
Disadvantages of ARFs
- Your retirement money is not guaranteed to keep its value because the assets in which your ARF is invested may not perform as well as expected.
- There is a risk that the ARF could run out in your lifetime. This could happen if you:
- take income from your ARF at too high a rate,
- its investment performance is less than expected or
- you live longer than expected,
- You will have to pay for any ongoing investment advice about your ARF.
- Some ARFs have high ongoing charges, which will reduce the value of your fund.
- There is no guarantee that your ARF will be able to buy you a higher pension later on than you could have bought at retirement. Annuity rates could be lower in the future than they are today.
- Revenue will assume that you have withdrawn 4% each year (for those under 71 years and with funds of under €2 million) and you will be charged income tax and USC on that amount.
It is important to weigh up the pros and cons of both options, and consider your own personal circumstances, now and in the future, before you make a final decision. Always seek independent advice
Tools to help you choose
With so many different plans and options available you may need some help making the decision that’s right for you. Thankfully, you’re not alone. From pension calculators to financial advisors, there’s plenty of help available.
You can use this ARF or Annuity tool from Zurich Life to see which option might be more suitable for you at retirement. There’s no right or wrong answer as to which option is better – just which one is better for you (based on the information you provide).
What some of our happy Approved Retirement Funds (ARF’s) customers have to say…
We’ve been with Pascal a good few years now and has always been on hand to give sound advice and answer any queries. I wouldn’t go anywhere else for professional financial advice.
Approved Retirement Funds (ARF’s) FAQ’s
Am I eligible to invest in an ARF?
Whether you can invest in an ARF depends on what type of pension plan you already have. The option to invest in an ARF will apply if you are using the funds from one or more of the following contracts
- Personal Pension Plan:
The option to invest in an ARF is available if you have a personal pension. If you took out your pension plan when you were self-employed, a sole trader, a partner, or you worked for a company that did not have a pension scheme, you are most likely to have a personal pension plan.
- Company Pension Plan:
If you have a defined contribution company pension plan you may be able to invest in an ARF when you retire. If you have a defined benefit company pension plan you will only be able to invest the Additional Voluntary Contributions (AVCs) part of your plan in an ARF.
- Additional Voluntary Contribution (AVC) Plan:
If you contributed extra amounts to top up your company pension plan, you can invest the money built up in your pension fund from your AVCs, in an ARF or AMRF
- Personal Retirement Savings Account (PRSA):
ARF options are available using the fund built up in a PRSA. However, there is the option to leave your fund under your PRSA and similar rules to an ARF will apply. You may not have to move your funds from a PRSA to take advantage of ARF-type benefits. Whether you decide to move your fund from a PRSA to an ARF depends on whether the ARF offers different options. For example, what investment choices you have in that new product. You should also consider the charges under the new product versus the existing charges under your PRSA. There may be more considerations and you should discuss this with your adviser.
- Personal Retirement Bonds (PRBs):
The option to invest in an ARF is available if you have a PRB or a buyout bond.
Can I contribute to my ARF?
How much of my Fund is invested?
Will I have access to my money?
Can my funds run out before I die?
Can I transfer my ARF to my husband?
An Approved Retirement Fund (ARF) is a post-retirement investment contract between an individual and a Qualifying Fund Manager (QFM) for the proceeds of retirement benefits not taken in the form of a lump sum from eligible contracts. The individual is the beneficial owner of the contract.
Income tax is due on all withdrawals from ARFs and vested PRSAs at the individual’s marginal rate. This includes trasnfer’s to anyone else.
If you move money out in any shape or form bar transferring to another ARF in your own name then income tax, USC, PRSI if applicable will be charged.
So, transferring to your wife or husband is not a good idea.
The only 2 scenarios where the name can change on an ARF, without a tax bill, would be:
- Death of the ARF holder, the ARF then transfers to an ARF in the spouse’s name.
- A Property Adjustment Order is applied against a portion (or all) of the ARF, this usually happens if the couple are separating/divorcing, the ARF (or a portion of) transfers out to an ARF in the other spouse’s name.
Will I have to pay tax on my ARF?
What happens to my fund if I die?
One of the main differences between an ARF and an annuity is that with an ARF you own your retirement fund. This means that when you die, you can leave the funds to your husband, wife or beneficiaries. When you die, your plan provider will pay 100% of the value of your ARF plan. If you leave the funds to your husband, wife or registered civil partner, they can transfer the funds to an ARF in their name. In all other cases, your plan provider will pass the funds to your estate.
What about tax if I die?
If your funds are transferred to an ARF in your husband’s, wife’s or registered civil partner’s name, there is no income tax or capital acquisitions tax (CAT) due. If you leave your funds to anyone else, they may have to pay income tax or CAT depending on who they are and their circumstances. If your estate has to pay income tax, your plan provider will deduct this before paying the proceeds of your fund to your estate.
Table 1: Summary of the tax rules which currently apply to post-death transfers from your ARF set up with the proceeds of your own retirement fund.
|Your ARF inherited by||Income tax Capital||Inheritance Tax|
Transfer to an ARF in the name of your surviving spouse or civil partner
PAYE is due on any future withdrawals made by the surviving spouse or civil partner from their own ARF.
|Directly by your surviving spouse or civil partner, i.e. not transferred to an ARF|
Subject to PAYE and treated as your taxable income in your year of death.
|Your children (if 21 or over)|
At a fixed rate of 30%
|Your children (if under 21)||No||Yes. Tax of 33% applies to any part of the inheritance over the child’s available tax-free threshold amount (currently a maximum of €335,000). (Correct as of 2023)|
|Any other person|
Subject to PAYE and treated as your taxable income in your year of death.
Yes. Tax of 33% applies to any part of the net inheritance over the beneficiary’s available tax-free threshold amount.
Table 2: – Summary of tax rules that apply:
- after your death, if you inherited the proceeds of an ARF from your husband, wife or registered civil partner; or
- if your husband, wife or registered civil partner dies after inheriting the ARF from you
|Your ARF or AMRF inherited by||Income tax Capital||Acquisitions Tax|
Children (if under 21) of the
deceased ARF owner
|No||Yes. CAT at 33% applies to any part of the inheritance over the child’s available tax-free threshold amount (currently a maximum of €335,000, correct as of June 2022)|
Children (if 21 or over) of the
deceased ARF owner
|Yes. At a fixed rate of 30%||No|
|All others||Yes. At a fixed rate of 30%|
Yes; if being inherited by someone other than your spouse or civil partner.
available tax-free threshold amount
What level of potential returns can I expect to receive?
It is important to realise that the value of ARF investments may go down as well as up and that there is the possibility that, at any time, the value of your ARF can be lower than your initial investment. Any returns provider by your advisor would be examples only and are not a guide to future performance. Any returns will depend on investment and economic conditions at the relevant time in the future.
Can I cancel my plan?
You have 30 days after you receive our Welcome Pack to cancel your plan. If you decide to do this, your plan provider will return any contributions you have made in line with Revenue rules, less any reduction in investment values during the period.
If you go through a separation, divorce, dissolution of a civil partnership or your relationship with a qualified cohabitant ends, a court application for a property adjustment order may be made for the benefits paid under this plan. If a property adjustment order has been granted on your plan you must let your plan provider know. You can get more information from your solicitor.