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Your Pension Options

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There are 4 options available when you retire. The options available to you depend on your personal circumstances and the type of pension you have.

Retirement Lump Sum

At retirement everybody has the option of taking a retirement lump sum.

Most people take the maximum amount allowed under this option. The level of retirement lump sum you can take will depend on the type of pension plan you have and your personal circumstances. The level of retirement lump sum which may be available under each type of pension plan is explained in the ‘What are my options?’ pages.

The current maximum retirement lump sum you can receive tax free from all your pension plans is €200,000. Retirement lump sums between €200,000 and €500,000 will be subject to standard rate income tax (currently 20%). Any retirement lump sums greater than €500,000 will be taxed at your marginal rate, the Universal Social Charge (USC), PRSI (if applicable) and any other taxes or government levies applicable at that time will also be due. Both the €200,000 and €500,000 limits include all retirement lump sums you have received since 7 December 2005.

Your financial adviser can give you more information about what you are entitled to.

Buy a Pension for Life (Annuity)

When you hear people talking about a pension this is what they usually mean. A pension for life also known as an annuity is a regular income paid to you for the rest of your life. Your regular income stops when you die unless you choose an option which continues this payment, more details on these options are outlined below.

You will have to pay income tax at your highest rate on withdrawal, USC and any other taxes or government levies due at that time on any pension income you receive.

There are a number of extra options available; your financial adviser can help you decide which options best suit your needs;

  • A pension paid to you for at least five years or 10 years. This means that if your die during this period, we will continue to pay the pension to your dependants to the end of the five or 10 year period. This is called the guaranteed period.
  • A pension which will increase. This means your pension increases each year, to take account of inflation, when it is being paid. Your payments may increase by either 3% or 5%, depending on Revenue limits.
  • A pension for your husband or wife, registered civil partner or dependant. This means if you die we will pay a pension to them until they die.
  • You may qualify for an enhanced annuity based on information on your lifestyle and medical history (and that of your dependant if applicable). Enhanced annuities offer a higher income than standard annuities this is because they work on the basis that, if you have a medical condition then you’ll have a shorter life expectancy than somebody in a better state of health.
  • You can arrange for your income to be paid every month, every three months, every six months or every year.

You don’t have to make any of these decisions until you actually retire. You should discuss these options with your financial adviser. The option you choose will affect the cost of the pension income for life and the level of income you will receive.

In the past, some pension plans offered a Guaranteed Annuity Rate at retirement. This can be a very valuable option. The type of annuity available is generally set and any changes mean you would lose the guarantee. You should check your contract to see if you have this guarantee.

If you do, you should compare the guaranteed rate to current annuity rates on the market.

Reinvesting Your Pension Fund

With certain types of pension plans you may be able to reinvest some or all of your pension fund in an Approved Retirement Fund (ARF) and withdraw money as you want, depending on certain restrictions.

If you have a PRSA you can continue investing in your PRSA after you take your retirement lump sum. Your PRSA will become a vested PRSA and will be treated the same as an ARF or Approved Minimum Retirement Fund (AMRF) until age 75.

If you decide to continue investing in the PRSA as a vested PRSA or transfer to an ARF or AMRF, it is important to remember that the value of your fund may be reduced over time if the level of withdrawals is high and the investment return is not high enough to maintain this. When you die, any money left in your fund will pass through your personal representatives to your estate. Your spouse or registered civil partner may have the option of continuing to invest in a separate ARF.

What is an ARF?

An ARF is a separate plan that allows you to continue investing after you retire. With an ARF you manage and control your retirement fund and can invest in a wide range of different investment funds. You can also make withdrawals, as you need them. You also pay income tax at your highest rate, the USC, PRSI (if applicable) and any other taxes or government levies due at the time on all withdrawals. You can leave the rest of the fund to your dependants when you die.

Minimum Withdrawal Amounts

The Finance Act 2006 introduced an obligation on all qualifying fund managers to deduct tax from ARF funds every year as if you had taken a minimum withdrawal. The Finance Act 2012 extended this tax requirement to vested PRSAs.

Each December, we will review any withdrawals you have taken during the year. If you haven’t taken any withdrawals, or if the withdrawals you have taken are lower than the minimum withdrawal amount, we will pay you the minimum withdrawal amount less income tax at your highest rate, the USC, PRSI (if applicable) and any other taxes or government levies due at the time. We will only take the minimum withdrawal amount from your ARF and vested PRSA from the year you turn 61 (or 60 if your birthday is 1st January).

The current minimum withdrawal amount is 4% of the value of your fund from the year you turn 61 (or 60 if your birthday is 1st January) and 5% of the value of your fund from the year you turn 71 (or 70 if your birthday is 1st January) at the end of each year. Currently if the total value of your ARFs and vested PRSAs are more than €2,000,000 then you must withdraw at least 6% of the value of your ARFs every year. It is your responsibility to let us know if you have other ARFs and Vested PRSAs with a total value of more than €2,000,000. This could change in the future.

Approved Minimum Retirement Fund (AMRF)

If you do not have a guaranteed pension income for life of at least €12,700 a year when you retire, you must invest €63,500 in an AMRF (or the rest of your fund if it is less than this amount) or buy a pension with the same amount. The main difference between an AMRF and an ARFis that you are not required to make a minimum withdrawal from an AMRF each year. You may make one withdrawal each year from an AMRF of up to a maximum of 4% of the value of your funds at that time. You will have to pay tax on any withdrawal made and the withdrawal may be subject to an early withdrawal penalty.

This 4% restriction applies until one of the following happens (whichever is first).

  • You start receiving a guaranteed pension income for life from other sources (currently €12,700pa), or
  • You reach age 75.

It is your responsibility to let us know if your income changes.

Example of how an AMRF and ARF work together
Your retirement fund

€500,000

Retirement lump sum (for example, 25%)

€125,000

Rest of retirement fund

€375,000

Invest in an AMRF (if you do not have a guaranteed pension income of €12,700 a year)

€63,500

Invest the rest in an ARF

€311,500

Making regular withdrawals may reduce the value of your fund, especially if investment returns are poor or you choose a high rate of withdrawal (or both). It is possible that your fund could run out before you die. The higher the level of regular withdrawal you make, the higher the chances are that you will use up your fund in your lifetime. If you do not have a guaranteed pension income that will maintain your current standard of living during retirement, we recommend that you think about buying a pension for life before choosing to draw an income from your vested PRSA or invest in an ARF.

Leave Your Funds in Your PRSA

If you have a PRSA you can take your retirement lump sum and leave the balance in your PRSA as a vested PRSA until age 75. Depending on your circumstances at the time you take your retirement lump sum you may have to keep up to €63,500 in your vested PRSA – this is called your restricted fund.

You will not be able to take any withdrawals on the fund below the restricted fund. You will not have to keep a restricted fund if you meet one of the following conditions:

  • You receive a guaranteed pension income for life of €12,700 a year; or
  • You have invested €63,500 in an AMRF; or
  • You have €63,500 in a separate vested PRSA along with any amount you have invested in an AMRF; or
  • You have used at least €63,500 to buy a pension for life;

Anything over your restricted fund will be treated in a similar way as an ARF (see above).

Minimum Withdrawal Amount

The minimum withdrawal requirement as described here will apply to vested PRSAs over the restricted fund in the same way as ARFs.

From age 75 you will no longer be permitted to take withdrawals from your vested PRSA.

Your Financial Providor may be required to deduct income tax and USC from your vested PRSA as if you had taken a minimum withdrawal, however no further payments can be made to you. If you want to continue to access to your pension after 75 your should speak to your financial adviser about your options before your 75th birthday.

Take As a Taxable Cash Sum

Depending on the type of plan you have, you may be able to take the rest of your fund in one go (after the retirement lump sum). You will need to pay income tax at your highest rate, the USC, PRSI (if applicable) and any other taxes or government levies applicable on this lump sum at the time.

See the ‘What are my options?’ sections which will show if this option is available to you.

Your Open Market Option

You can choose to buy a pension for life from a pension provider other than us. This is called an open market option. If you move to another provider, you may get a higher or lower pension income. You may also lose some of the options available to you under your pension plan (such as a guaranteed annuity rate) when you retire. Once you know what type of pension interests you, you can compare the different levels of income on offer. Your financial adviser can help you with this and you can also visit the Competition and Consumer Protection Commission at www.consumerhelp.ie. It is also possible to buy an ARF or AMRF product from a qualified fund manager other than us.

Maximum Pension Fund

The maximum pension allowed at retirement from all sources for tax purposes is €2,000,000.

This is called the standard fund threshold (SFT).

Any pension fund over €2,000,000 will be taxed at the higher rate (currently 40%). This tax is taken from the pension fund before your retirement benefits are paid. If you have pension funds over this amount you should talk to your financial adviser.

If the value of your pension funds were greater than €2,000,000 on 1 January 2014 or greater than €2,300,000 on 7 December 2010 or €5,000,000 on 7 December 2005 you may have applied for a personal fund threshold (PFT) from the Revenue Commissioners.

The Revenue would have issued you with a PFT Certificate which replaces the SFT.

If you did receive a PFT Certificate you will need to send a copy of that certificate to your pension provider when you take your retirement benefits.

All limits set out in this page may change in the future.

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