After Retirement

It’s not something many people before the age of 50 probably think about, but it does pay to give some thought to what you want to do with your pension fund when it's your time to retire, because in the past ten years greater choice has been introduced in this area.

Retirement Options

Annuity

The traditional way of purchasing income for life – the holder receives a regular payment from the insurance company for the duration of their and their spouses life.

Approved Retirement Fund (ARF)

A newer way of holding money for retirment – this fund remains in the hands of the retiree and is used to generate an income. ARFs can be invested in a number of ways including managed and equity funds, shares and property.
 

Annuity vs. Approved Retirement Fund

The fundamental difference between both is that with the ARF, the holder retains ownership and controls the money, while with the Annuity it is paid to the provider in return for a guaranteed income for life. Personal Pension holders, PRSA holders and Company Directors currently qualify for ARF options. Everybody else must purchase an annuity at retirement.

Do I qualify for an Approved Retirement Fund?

In order to qualify for an ARF, one of the following criteria must be met:

  • You must have €12,700 in pension income for life in your own name.
  • The pension holder must set aside €63,500 in an Approved Minimum Retirement Fund (AMRF) until they reach the age of 75.

Did you know?

  • An imputed income tax on 3% of the fund is taken every year whether you make a withdrawal on the ARF or not - accordingly it is recommended that you take at least 3% of the fund - income tax rates depend on your personal circumstances
  • ARFs are often used for inheritance planning as they can be passed onto the next generation.
  • The Government is considering allowing a wider group to avail of ARF options - this is contained in the National Pensions Framework Document.

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Frequently Asked Questions

  • How much should I save for my pension?

    This depends on the age you start contributing, whether your employer also contributes to your pension plan and what amount of pension income you want for your retirement.  See our online pension calculator which will give you some idea of the amount required.

  • Do I need Additional voluntary contributions (AVCs)?

    Additional voluntary contributions (AVCs) are extra payments you choose to make to your pension fund. You may need them if you find out that your existing contributions may not be enough to give you your expected income at retirement.

  • What happens to my pension if I die before I retire?

    This depends on whether you have an employer pension plan, a personal pension plan or a personal retirement savings account (PRSA).  If you have an employer pension plan there will be rules about what the fund will pay out to your dependants (people who rely on you for financial support) if you die ‘in service', (that is, while you are still employed). These are called ‘death-in-service' benefits.  Death in service benefits allow for a tax free lump sum and an annuity to be paid to a surviving spouse.  The maximum tax free lump sum payable is 4 times your salary. Ask your employer for information about what your plan provides. You should take this into account when deciding how much life insurance cover you need, or when making a will. 
     
    If you have a personal pension plan or PRSA, the value automatically passes to your estate for the benefit of your dependants if you die before you retire. You need to consider the value of your pension plan when deciding how much life insurance cover you need, or when you make a will.

  • What pension do I get if I retire early due to ill health?

    Some employers provide an ill-health pension for their employees if they have to retire early because of illness.  If your employer does not provide these benefits, you may want to consider taking out some form of salary protection insurance such as income protection insurance. This type of policy is not the same as a pension but it can replace part of your income for as long as you are unable to work due to ill health.
     
    If you have a personal pension plan or PRSA and If you become permanently unable to work due to ill-health and have to retire, you can immediately draw on your pension plan, no matter how young you are.
     
    As with voluntary early retirement, the amount you get will be much less than if you contributed up to your original expected retirement age because you have paid fewer contributions and these have been invested for a shorter time.

  • I've just been made redundant. What are my options with my pension?

    Whenever you leave employment through voluntary means or by redundancy, you will usually receive a letter from your former employer outlining your options concerning your pension.  You should study them carefully as this is an important decision for you to make.  The options open to you include transferring your fund to a new employer's scheme if you have found a new position, transfer it to a Buy Out Bond which transfers your fund from your former employer's responsibility and into yours or  transfer it to a PRSA.  You can also choose to leave the fund under the care of your former employer but unless it is a Defined Benefit Scheme, you should give careful consideration to moving it.  In Ireland there is no pension protection scheme and pension schemes may become insolvent leaving you with no pension.  It is important that you consider all of the facts carefully if you find yourself in this position.