The Finance Bill was published on Thursday (23 October 2014). It usually throws up a few interesting changes that weren’t big enough to be included in the Budget speech. And sure enough, there were some changes to the treatment of ARF’s and AMRF’s.
In 2006, in a measure to combat using ARF’s as tax avoidance vehicles, the government introduced imputed distribution. This provision meant you had to take out a percentage of your ARF each year and pay income tax. If you didn’t, the Revenue took the income tax due directly out of your fund anyway. It was phased in, starting at 1% and going up to 3%. It wasn’t long until the imputed distribution amount was increased to 5%. This meant that naturally conservative retirees had to take increased levels of investment risk in their ARF fund.
From 1 January 2015, the imputed distribution amount for those under age 71, has been reduced back down to 4%. For those age 71 +, the imputed distribution amount remains at 5%. These changes are designed to add an additional 5 years to the life of an ARF.
For those with ARF’s over €2m, imputed distribution of 6% remains in place.
AMRF’s were introduced by Charlie McCreevy along with the ARF. If you were investing in an ARF, if you didn’t have a guaranteed income of €12,700, you had to put €63,500 into an AMRF until you were age 75. You could only access the growth on the fund but under no circumstances could you access the €63,500 until you were age 75. It was supposed to be safe guard for those who spent their ARF money wildly but it never addressed what these people were supposed to live on while waiting to reach age 75!
From 1 January 2015, you can now draw down 4% of the AMRF each year. If the same Qualified Fund Manager looks after your ARF & AMRF, you can use any withdrawals from your AMRF against your imputed distribution for the year.
When this change is introduced, they are also getting rid of the ability to withdraw the growth on the fund.
If you have any questions, please contact me directly at steven@bluewaterfp.ie