I was looking through my blogs and in the 12 years of writing articles (this is blog 559), I can’t believe I never wrote about this. If you have a personal pension or a PRSA, the options at retirement are pretty straight forward:
Company pensions, however, differ on what you can do and it is unnecessary confusing and non-sensical.
In a throw back to the days of defined benefit schemes (a few still exist outside of the public service pension), the lump sum you received is based on your years service and final salary. You got 3/80th of salary for each year service, so 120/80th (150%) of salary if you had 40 years service.
If you had less than 40 and retired at the scheme retirement age, you could get an “uplift” and get the full 150% with 20 years service.
If you use this option, the remainder of your pension must be used to purchase an annuity. If you have an AVC payments, they can be used to either purchase an annuity or invest in an ARF. But the value of your employer and your own normal contributions must be used to buy an annuity.
More in line with PRSAs and personal pensions, there is an option of taking 25% of the value of your pension as a lump sum. Which is pretty straight forward and doesn’t matter on how many years service you have.
If you avail of this option, you must invest the remaining 75% in an Approved Retirement Fund (ARF). The option to purchase an annuity is not available…however, the ARF itself is capable of purchasing an annuity, so you can get on through a roundabout way.
There are many pension scheme members who were in a defined benefit pension which closed down and was replaced by a defined contribution plan.
Employers tended to offer very good employer contributions to the new defined contribution scheme as a way of appeasing members. These members have now built up significant defined contribution pension pots.
When it comes to retirement, the pensions are viewed together as they are in relation to the same continuous employment. If you exercise take the annuity option under the defined benefit scheme, you can do the following with the defined contribution scheme benefits:
The scheme member has the option of transferring their defined benefit pension to a Buy Out Bond and converting it to a defined contribution pension and be able to avail of the ARF option for their pensions. But they will give up their very valuable defined benefit pension, which is something that most do not want to do.
As times have changed and more people make us of ARFs over annuities, isn’t it about time the Revenue streamlined the retirement options and made them less restrictive?
Steven Barrett
15 December 2025