Time to get rid of the AMRF

I had a meeting last week with a non national who wanted to know her options at retirement before she made her pension investment. As she is unlikely to stay in Ireland when she retired, she wanted control over her retirement fund. ‘No problem’, I said, ‘You can take complete control of your fund in retirement, even draw it down in one lump sum…except for the first €63,500. That, you must put away until you are 75.’ This client intended retiring at 60, so 15 years was a long time.

What is the purpose of the AMRF?

When the ARF was introduced in 1999, pensioners were no longer restricted to giving their pension funds to insurance companies at retirement. They could now manage their funds themselves and take out whatever they wanted.

The story goes that the IAPF were worried that pensioners were going to take out all their money in one go, giving their members nothing to manage, so they lobbied Charlie McCreevy.

We were told that the AMRF was to be put in place to save us from ourselves. If you went mad and spent all your retirement fund on yachts and sports cars, there would be a fund there when you reached 75.

The problem with AMRF’s

The biggest problem with the AMRF is access. Even if you did go mad and blow all your ARF fund in a few years, the AMRF will not provide you with much of a safeguard. Why? You can only take out 4% of the fund each year. It doesn’t matter if you are in your early 60’s and need cash to live, you cannot draw down your AMRF until you are 75.

A few years ago, a client of mine had to retire early due to ill health. The doctor said he would be lucky to live another 2 years. Obviously, he didn’t want to buy an annuity so an ARF was the obvious option. There was absolutely no way that this man would live to see his 75th birthday (he subsequently died aged 58), so we wrote to the Revenue to ask for an exemption from the AMRF on medical grounds. I received a reply saying that while the sympathise with the client’s situation, the legislation does not provide them with an scope to provide exemptions to the AMRF. What if this man needed the money in the AMRF to pay for medical bills? He would have had no access to this money at all.

Prudent retirees

While the AMRF was sold to us as a way of saving us from ourselves, in reality, it has been quite the opposite. When given the responsibility of managing their own retirement income, retirees have been very prudent with their money. The majority take out the minimum requirement of 4% each year. The only cases I have seen of people emptying their retirement funds was during the recession when they needed the cash to keep their business open. Retiree’s understand the need to find the balance between drawing down and income and taking some investment risk, managing their fund for the long term. We have proof that there is no need to protect us from ourselves.

If you have any questions, please contact me directly at steven@bluewaterfp.ie