At retirement, if you choose to invest in an ARF, there is the restriction of the Approved Minimum Retirement Fund (AMRF), where you have to put the first €63,500 of your retirement fund into a policy where you can only draw access 4% of it each year until you are age 75, at which stage it converts to an Approved Retirement Fund (ARF). For those with large pension funds and other assets, the AMRF is a good way to keep funds accumulating without being subject to imputed distribution each year. But for most, they would like to have access to all of their retirement fund. So, what are the ways that the AMRF can be avoided:
If you are in receipt of a guaranteed income of at least €12,700 a year, you do not have to invest in an AMRF. Income such as rental income is not allowed as it is not guaranteed. You are basically looking at the old age pension and pension income to make up the €12,700 income. The State contributory pension is currently €12,392 a year, so it is not that far off. But even if you are just €308 off the requirement, you still have to put the full €63,500 into an AMRF.
It used to be that they looked at your guaranteed income at the time of retirement. The Finance Act 2013 changed that. If, after retirement, you subsequently received benefits that amounted to more than €12,700, you AMRF converted to an ARF automatically. Obviously you have to notify the Qualifying Fund Manager administering your ARF of this change in income.
You are not required to have an annuity worth €12,700; which will cost you around €300,000 to buy on the open market. Instead, you can use the €63,500 that is designated for the AMRF to purchase an annuity instead. You can expect to receive €2,700 a year if your purchase an annuity for €63,500. To be honest, the only times I have seen this done is when people have guaranteed annuity rates under the old With Profits plans where they received annuity rates of 8% – 9% instead of the current rate of 4%.
Even if you have invested in an AMRF, you always have the option of purchasing an annuity at any time.
For most who go down the ARF route, they put €63,500 into an AMRF and let it grow tax free until they reach age 75. At that age, it automatically converts to an ARF. It is then subject to imputed distribution, which is 5% for those over age 70.
With annuity rates as low as they are, the options available for avoiding the AMRF aren’t great. Your best option is to receive a benefit from the State in addition to your State pension to meet the €12,700 requirement. Otherwise, you have to wait until you are 75 and just take 4% out each year.
If you have any questions, drop me an email at steven@bluewaterfp.ie