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.
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.
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%).
There is a €2 million threshold for large value funds. Once your fund reaches or surpasses this amount it changes the imputed distribution rate. In these high-value fund cases the entry rate is 6% at the age of 61.
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.
Beyond the compulsory imputed distributions, ARF holders may take additional withdrawals at their discretion. However, tax efficiency should always be considered when making withdrawals
Withdrawals from an ARF can be taken:
All withdrawals are subject to income tax, so strategic planning is essential to avoid unnecessary tax burdens.
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.
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.
To maximise your retirement income while minimising tax liability, it is essential to stay within lower tax brackets where possible.
Up to €18,000 per year tax- free from all income sources.
Up to €36,000 per year tax- free from all income sources.
Can earn up to €44,000 per year and remain in the lower tax bracket (20%).
The higher-income earner can earn up to €53,000 per year and remain in the lower tax bracket (20%).
If the returns generated from ARF investments exceed withdrawals, the fund may last indefinitely.
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.
Upon death, the full value of the ARF is passed on as part of the estate:
ARF funds received by children over 21 do not count towards their €400,000 lifetime Capital Acquisitions Tax (CAT) exemption.
There are several ARF providers in Ireland, including:
ARF holders have a range of investment choices, depending on their risk tolerance and financial goals. Common investment options include:
ARF holders have a range of investment choices, depending on their risk tolerance and financial goals. Common investment options include:
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.
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.
Selecting the right ARF provider is critical. As pension brokers, we help clients compare providers based on:
Allocation rates, annual management charges, and ongoing fees.
Reviewing historical returns.
The financial strength of the provider.
The level of support and service offered.
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Our expert financial advisors can guide you in making the right ARF investment decisions to secure your financial future. Money Maximising Advisors Limited is regulated by the Central Bank of Ireland.