ARFs & Annuities

How do they work?

With AMRFs and ARFs you re­invest you pension fund and take the money out when you need it.

In order to take out an Approved Retirement Fund you must have a guaranteed pension income for life of €12,700 per year (from other sources than your ARF investment). If you don’t you must invest €63,500 of your pension fund into an Approved Minimum Retirement Fund or buy an Annuity ( see below ) with that amount. Once you have put this money in an AMRF or an Annuity you can put any remainder into an ARF.

An Approved Retirement Fund (ARF) is a personal investment account into which you can transfer part of your retirement fund at retirement instead of using those funds to buy an annuity or take their retirement benefit as a pension. It is therefore an alternative option to an annuity or pension

An ARF, therefore, does not provide the longevity insurance provided by an annuity. On the other hand, the balance in the ARF on death is preserved and paid to the ARF holder’s estate. The following can avail of the option to transfer the value of part of their retirement benefits to an ARF at retirement, rather than taking the benefit as an annuity:

• Personal Pension Plan holders.
• PRSA holders.
• Members of defined contribution occupational pension schemes, where the scheme rules provide the ARF option.
• Proprietary director members of defined benefit occupational pension schemes.
• Additional Voluntary Contribution (AVC) benefits.
• Buy Out Bonds, which relates to a transfer value received from a former defined contribution occupational pension scheme or AVCs.

Only funds from the above arrangements can be transferred to an ARF, subject to first meeting the €63,500 AMRF/annuity purchase requirement, if applicable to that individual when they take their retirement benefits.

Annuities

An annuity is a single premium insurance policy issued by a life assurance company where, in return for a lump sum payment now, the life company guarantees to pay a specified level of income for the remainder of the life of the individual insured by the policy.

Therefore while annuities provide a guaranteed income for life, they also carry the corresponding risk of the loss of a substantial amount of the money invested in the annuity if the individual dies shortly after purchasing the annuity.

Benefits of annuities

The main benefits to a consumer of investing retirement funds in an annuity are:

• The annuity provides a guaranteed monetary level income for life, regardless of how long the consumer may live in retirement.
• The consumer is not exposed to investment risk, as the annuity provides a guaranteed monetary level income for life.
• The consumer can choose from many different types of annuity, to choose the one that best suits his or her circumstances. E.g. the consumer can choose to buy a level annuity or one that increases each year