An Approved Retirement Fund (ARF) is a post-retirement financial product that allows you to reinvest your pension funds after retirement, following the withdrawal of the initial tax-free lump sum. It provides flexibility in managing your pension, enabling you to invest the remaining funds and potentially grow their value throughout your retirement years.
➡️ How ARF Work:
Upon accessing your pension fund, the following typically occurs:
Tax-Free Lump Sum: You receive a tax-free portion of your pension fund, typically 25% of the total value, capped at €200,000.
- Transfer to an ARF: The remaining 75% of the pension value is transferred into an Approved Retirement Fund (ARF).
- Taxation on Withdrawals: Any future withdrawals from the ARF are taxed as income under PAYE (Pay As You Earn) taxation rules.
➡️ WHY CONSIDER AN ARF?
Investing in an ARF is often attractive due to the flexibility it offers:
- Control over withdrawals – You decide how much to withdraw and when (monthly, annually, or on an ad-hoc basis).
- Tax-efficient income management – With careful planning, you can potentially reduce the amount of tax paid on your pension income.
- Investment flexibility – You choose how to invest your ARF funds to suit your risk tolerance and financial goals.
When Are ARF Required?
An ARF is typically required in the following scenarios:
✅ Retirement from a Defined Contribution (DC) Pension Scheme
✅ Transferring the taxable portion of an Additional Voluntary Contribution (AVC) fund from a Defined Benefit (DB) pension (e.g. a public sector pension scheme).
✅ Taking a transfer value from a Defined Benefit (DB) pension scheme.
✅ Accessing an overseas pension entitlement.
In simple terms, when most pension funds are accessed, the taxable portion is transferred into an ARF, where all future withdrawals are taxed as income.
ARF Withdrawal Rules:
🔹 Taxation on Withdrawals
- All withdrawals from an ARF are taxed as income and are subject to income tax, PRSI, and the Universal Social Charge (USC).
- Income tax is applied at the pension holder’s highest marginal rate (20% or 40%).
- PRSI deductions cease at age 66.
- Please note that any PRSI paid from ARF withdrawals will enhance your contributory state pension entitlement.
🔹 Compulsory Withdrawals – Imputed Distributions
Revenue rules mandate minimum withdrawals from an ARF as follows:
- From age 61: A minimum annual withdrawal of 4% of the fund value.
- From age 71: The minimum annual withdrawal increases to 5%.
If the pension owner does not withdraw the required amount, the ARF provider will automatically process the imputed distribution and pay the required tax to Revenue.
🔹 Additional Optional Withdrawals
Beyond the compulsory imputed distributions, ARF holders may take additional withdrawals at their discretion. However, tax efficiency should always be considered when making withdrawals.
Withdrawal Frequency
Withdrawals from an ARF can be taken:
✔ Monthly
✔ Annually
✔ Ad-hoc, as needed
All withdrawals are subject to income tax, so strategic planning is essential to avoid unnecessary tax burdens.
Tax Considerations on ARF Withdrawals:
Withdrawals from an ARF are subject to PAYE taxation. Taxes are deducted at source by the ARF provider before payment is made to the pension owner.
⚠ Excess Taxation & Rebates:
If a higher rate of income tax is initially deducted, a tax rebate may be claimed once annual income figures are finalised. This is especially relevant for ad-hoc withdrawals taken throughout the year.
🔹 Optimising ARF Withdrawals to Minimise Tax
To maximise your retirement income while minimising tax liability, it is essential to stay within lower tax brackets where possible.
Current tax-free income thresholds (as per Revenue rules):
- Single person: Up to €18,000 per year tax-free from all income sources.
- Married couple: Up to €36,000 per year tax-free from all income sources.
- Single person (assessed individually): Can earn up to €44,000 per year and remain in the lower tax bracket (20%).
- Married couple (joint assessment): The higher-income earner can earn up to €53,000 per year and remain in the lower tax bracket (20%).
By carefully planning withdrawals, ARF holders can ensure that they do not push themselves into higher tax brackets unnecessarily.
Once the fund is retired and accessed, the remaining 75% of the fund is then transferred into an ARF.
How Long Will an ARF Last in Retirement?
The longevity of an ARF depends on two key factors:
1️⃣ Investment Returns – If the returns generated from ARF investments exceed withdrawals, the fund may last indefinitely.
2️⃣ Withdrawal Rate – If withdrawals consistently exceed investment growth, the ARF will eventually deplete (known as “bombing out”).
💡 Example: If a pension owner only withdraws the compulsory 4% per year, they should aim to generate a net investment return of 4% or higher to sustain the fund over time. Choosing the right investment strategy is crucial.
What Happens to an ARF on Death?
Upon death, the full value of the ARF is passed on as part of the estate:
▶ To a surviving spouse – The ARF transfers tax-free, but all future withdrawals are taxed as income.
▶ To children under 21 – The ARF is subject to inheritance tax (lifetime exemption limit of €400,000 per child applies).
▶ To children over 21 – A flat 30% tax applies on the ARF value.
✅ Important: ARF funds received by children over 21 do not count towards their €400,000 lifetime Capital Acquisitions Tax (CAT) exemption.
Who Provides ARF?
There are several ARF providers in Ireland, including:
🔹 STANDARD ARF PROVIDERS:
✅ Zurich
✅ Royal London
✅ Irish Life
✅ New Ireland Assurance
✅ Aviva
🔹 SELF-ADMINISTERED ARF PROVIDERS:
✅ ITC
✅ Quest
✅ Cantor Fitzgerald
✅ Davy
ARF Investment Options
ARF holders have a range of investment choices, depending on their risk tolerance and financial goals. Common investment options include:
💰 Cash on deposit
📈 Stocks and shares
🏠 Property
🌍 Commodities
📜 Government & corporate bonds
Some ARF holders may prefer high-growth investments, while others opt for low-risk, capital-protected funds.
A tailored investment approach is essential to align with each individual’s needs and objectives.
How to Choose the Right ARF Provider
Selecting the right ARF provider is critical. As pension brokers, we help clients compare providers based on:
✅ Fees & charges – Allocation rates, annual management charges, and ongoing fees.
✅ Investment performance – Reviewing historical returns.
✅ Credibility & reputation – The financial strength of the provider.
✅ Customer service – The level of support and service offered.
We provide tailored recommendations to ensure you choose the best ARF provider to meet your retirement needs.
NEED HELP CHOOSING THE RIGHT ARF?
Our expert financial advisors can guide you in making the right ARF investment decisions to secure your financial future.