Hardly anyone buys an annuity these days. People have a fear of dying young and the life company keeping their money. And for such a long time, rates were so low, buying an annuity was just not worth it. With rates improving, it is worth looking at annuities again? Maybe for some of your retirement income.
Working with retirees, I come across a lot of people with defined benefit pensions as well as defined contribution ones. The defined benefit pension is a great source of income for the day to day expenditure with the ARF income being used to pay for the additional expenses.
The retiree knows that even if there is a market crash, their regular income is secure and there won’t be any fluctuations. They are also calmer regarding any fluctuations in the market with their ARF because it is only a part of their income. They don’t have to worry about selling more in a falling market to cover their cost of living.
If you have a PRSA or a personal pension, buying an annuity and ARF through your private pensions is easy enough. You just allocate the funds you need to each product.
If you are in a company paid pension, it is not that straightforward because of some very outdated rules. If you take your lump sum as a percentage of final salary (up to 150%), you must purchase an annuity with the remainder. Any AVCs can be invested in an ARF. If you take 25% of the value of your pension as a lump sum, you must invest the remainder in an ARF.
There is a workaround to this. You can get the ARF to purchase the annuity. You take the 25% tax free lump sum and transfer the remainder to an ARF. You complete an annuity proposal form as well and the ARF will buy it.
If you opt for the 150% final salary option, besides being able to invest your AVCs in an ARF, there is no workaround for the rest of your fund except transferring it to a PRSA before the normal retirement age of your scheme.
With annuity rates improving, having a mix of annuity and ARF is becoming more popular but the current rules are making it unnecessarily complex to do so.
Steven Barrett
02 March 2026