ARF early exit penalties

The Finance Bill changed the amount that people had to take from the ARF each year. But something that most ARF holders aren’t aware of, is that there are limits imposed by the life companies on how much they can take from their policy each year.

Why are there early exit penalties?

When I wrote about pension charges , I explained that insurance companies offer bonuses to clients or pay for advisors fees if you place the money with them.

In one case, a client got a bonus of €78,000 put into his ARF with no penalties on his contract. Within 3 months, he had moved to another provider and taken the extra €78,000 with him. To protect themselves from this happening, the insurance companies impose penalties in the first 5 years if you move your money. They are usually on a sliding scale with a 5% penalty in year one down to a 1% penalty in year 5. After the fifth year, the penalties are removed.

How much can I take out without early exit penalties?

The life companies have limits on how much can be taken out on a regular basis.

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Friends First does not apply any early exit penalties if you take out the money for personal use. Their penalties only apply if you transfer to another provider.

 What about taking out lump sums?

Once off lump sum withdrawals in the first 5 years are subject to the early exit penalties. What you can do is increase the regular amount (up to 15% under some contracts) and then reduce it again once you have taken out the required funds.

What can I do to avoid these early exit penalties?

When you are setting up your ARF, ensure that there are no bonuses paid by the insurance company. If they don’t have to recoup any money, they won’t need to impose penalties.

It will also save you money in the long run. The life companies recoup these bonuses through the annual management charge under your contract. If there is nothing to recoup, you get a lower annual management charge and save a lot of money over the term of the contract.

If you have any questions, please contact me directly at