When you reach retirement, you have an important financial decision to make regarding your pension fund and how it could be best used to meet you and your family’s needs in the future.
Two of the most important factors you should consider are the way in which you wish to use your pension fund to provide an income in retirement, and whether you wish to pass the balance of your fund to your dependents after your death.
What you can do with the proceeds of your pension plan depends on which employment category you fall into and the type of pension plans you currently hold. Depending on your circumstances there are different options for you to consider at retirement.
When can I retire?
Typically, you can retire from your pension from the age of 60. However, there are situations whereby you can retire from as early as 50 from your scheme depending on the type of pension you hold.
Tax-Free Lump Sum
Most people will choose to take the very attractive tax-free retirement lump sum option of up to €200,000 from their pension fund (subject to Revenue rules). The maximum amount of lump sum that you may take is 25% of the value of your fund at retirement.
If you have an Occupational Pension Scheme you can opt for a Tax-Free Lump Sum of 1.5 times your final salary subject to a maximum of €200,000 provided you have 20 years service completed with the company.
What can I do with the balance?
The balance of your pension can be used in one of the following three ways to meet your financial needs in retirement:
- Purchasing a pension income for life (also known as an Annuity).
- Investing in an Approved Retirement Fund (ARF).
- Taking a taxable lump sum.
Purchase an Annuity
You can purchase an annuity which will provide you with an income for the rest of your life – or an income that will continue to be paid, after your death, to your spouse/civil partner. If you choose to purchase an annuity, you may purchase this from the most competitive provider and we can assist you in this regard by shopping around for you.
Invest in an ARF/AMRF
You can also fully or partially invest the balance of your fund in an Approved Retirement Fund (ARF) – a more flexible arrangement that allows you to continue to invest in funds after retirement and withdraw money as and when you wish. To choose an ARF, you must have a guaranteed pension income of €12,700 per annum. If you don’t, you will have to invest €63,500 in an annuity, an Approved Minimum Retirement Fund (AMRF), or a combination of both.
An ARF allows you to:
- Make withdrawals when you want
- Receive a regular income from your ARF
- Pass on the value of your fund if you die to your spouse or estate.
You are required under Revenue regulation, to take a withdrawal of a certain amount each year. An Approved Minimum Retirement Fund (AMRF) is similar to an ARF but there is a maximum investment amount for an AMRF, which is set by the Revenue. You cannot withdraw from the original capital invested, but investment growth (if any) can be withdrawn at any time.
An AMRF becomes an ARF:
- When you reach age 75.
- If you satisfy the minimum guaranteed pension income requirement as set out by the Revenue before age 75.
- If you die before age 75.
An ARF or AMRF can be converted to an annuity at any time.
Taking an additional, taxable lump sum at retirement
You may take an additional taxable lump sum. You will pay income tax on the amount you withdraw from your fund.
Note: You have to satisfy certain conditions to avail of an ARF or an additional taxable lump sum.
Which option is right for me?
The retirement option that is right for you will depend on many factors, including:
- The size of your retirement fund.
- The level of income you and your spouse/civil partner/dependants will need during your retirement years.
- The number of other assets – apart from your retirement fund – that you have to fall back on.
- Whether investment growth or security is more important to you during your retirement years.
- Whether you wish to pass your retirement fund on to your dependents.
- Your current state of health.
For many, the thought process around retirement options can be onerous as they are unsure of the implications of one choice over another. We at Oaktree Financial Services have the experience and knowledge to assist with these decisions and are here to help. Contact us today on 025-30588 or book a chat with us here.