There’s no doubt that the Irish pensions landscape could benefit from being simpler. So the abolition of Approved Minimum Retirement Funds, or AMRFs from 1 January 2022 is broadly to be welcomed.
But what does it mean if you’re approaching retirement, or if you already have an AMRF? We’ve set out the main considerations for people in Ireland who are planning their retirement funds.
What’s an AMRF and how has it changed?
Up to 2021, if you were less than 75 years old, and didn’t have a guaranteed pension income (such as an annuity) of €12,700 or more, you were required to put €63,500 into an AMRF before you could put money into an ARF. There were restrictions on how much you could withdraw from your AMRF in an attempt to make sure people didn’t run out of money in retirement.
In practice, many people receiving pensions found the requirement overcomplicated and not financially meaningful.
The government has now abolished the requirement altogether.
What do the AMRF changes mean if I retire in 2022 or later?
Your decision has just become a little bit simpler. Your options at retirement are largely the same as before, except that if you decide to take a lump sum and keep the rest of your money invested for growth and income in retirement, it can all be invested in a single Approved Retirement Fund or ARF.
The restrictions on withdrawing money from your ARF are lower, meaning you have more flexibility on how you draw down income in retirement.
What does the change mean if I already have an AMRF?
If you retired in 2021 or earlier, there’s a good chance you were required to set up an AMRF. For most people, this account simply sat alongside their ARF. It was invested in the same way, just less easy to access.
The change has three implications if you already have an AMRF.
- Your AMRF will likely be redesignated as an ARF. Most pension providers seem to be retaining the same account numbers so there should be no new paperwork.
- You’ll be able to draw down the funds from your AMRF as you choose, and you’ll be taxed on at least 4% of its value depending on your age.
- Now could be the right time to review both your ARF and your AMRF. If you set up your retirement funds some years ago, it’s possible that it could do with updating.
The pensions market has evolved in recent years, and your requirements may have changed too. It might mean changing the investment strategy, the approach to drawing down your money, or reducing the costs, for example.