> Approaching retirement > Approved retirement funds (ARFs)

What’s an Approved Retirement Fund?

An Approved Retirement Fund, or ARF, is a pot for your pension money after you retire.

When you retire, the pension funds you have paid into are available to you.  You can then take decisions on what to do with your money.

One of your options is to move your money into an Approved Retirement Fund.  It can then be invested in a range of growth assets, such as investment funds.  (The other main routes are to take a cash lump sum, or invest in an annuity).

Why would I choose an ARF?

There are three main advantages to using an Approved Retirement Fund to provide your income after you stop working in Ireland.

1. Growth potential

By keeping your pension pot in an ARF after you retire, you have the possibility of continued increases in its value.  Your ARF retains the major advantage of tax-free investment growth.

In retirement, your investment timescale is often longer than you think – maybe thirty years, or more.  You can take advantage of that by investing your money in a wide range of assets with the aim of growing your pension pot over the medium term, even as you start to draw it down.

2. Control

An ARF is the route to keeping control over your pension.  You decide how much to draw down, and when, for example.

You also decide how it’s invested.   For many people in retirement, the aim is to keep it simple, and Moneycube can help you decide on an appropriate mix of investment funds to put your money to work.

But if you want to be more hands-on, then it’s possible to invest your ARF in a wide range of assets, from equities to bonds as well as alternative assets like commodities and infrastructure, and even single property assets.

Lastly, it’s worth remembering that you do not have to remain with your existing pension provider when you open an ARF.  In many cases, you’ll receive better value by moving to a new provider.  Moneycube can help you shop around.

3. Long-term value, even on death

Unlike an annuity, the value of an ARF does not extinguish on death.  Instead, the funds remaining in your ARF become part of your estate. That means you can leave any remaining funds in your ARF to your spouse or partner, or other beneficiaries such as your family.

How do I get the money out?

You can withdraw money from your ARF over time, either on a regular basis, or in lump sums as you need it.

Once your money is in an ARF, you’re required to withdraw a certain percentage of the fund each year. (4% or 5% depending on your age, and 6% if your ARF has more than €2 million in it).

Anything else I need to know?

Before you can open an ARF, you need to have a guaranteed income of at least €12,700 for life (for example, from an annuity and the state pension).  If you don’t have an income like this, €63,500 of your pension fund must go into an AMRF first.

 

Read on: Tax-free lump sum