ARF - A Dummy's Guide

EmeraldBlue

Hi,

I have been reading for a while but this is my first post. I am retired and wish to put my pension pot into an ARF. That bit has been decided, now I have to select an ARF. Apart from the 'consult a financial advisor' advice, are there any other factors I should take into account? I have taken some financial advice.

Looking at the market there seems to be a choice between a broker (usually selling a big insurance company fund) and a direct fund manager approach. At least that is what I have come across so far. Does anyone have an opinion on the advantages or disadvantages if either approach?

Also looking at the funds right now and assuming that I would take out 4% each year, then the growth prospects of what I have seen are not very encouraging, especially in the recent past. Any comments on this would be welcomed.

Thanking you.

coylemj

EmeraldBlue wrote: »

Also looking at the funds right now and assuming that I would take out 4% each year, then the growth prospects of what I have seen are not very encouraging, especially in the recent past. Any comments on this would be welcomed.

How long are you planning to live to?

Assume you make a very conservative investment choice and achieve an annual return of 1%. Taking the minimum (imputed) distribution of 4% annually from age 60 until age 70 and 5% thereafter, you will still have in or about half your capital at age 80.

But that example involves a diminishing amount each year as the capital reduces. If you started withdrawing 4% at age 60 and continued to take the same flat amount (4% of the original capital) annually, the money would last until you reached 88. At 1.5% annual return, it would last to age 91.

EmeraldBlue

Thank you for your reply. My lifespan is not entirely under my control!

I have an additional observation/question:

A PRSA has been mentioned. This I believe is a vehicle to transfer a pension pot into an ARF that allows a tax free lump sum to be taken out. Some proposals have an additional charge for something they call an actuarial review while others do not charge for the transfer service. Does anyone know if the review mentioned is mandatory by law?

coylemj

When you retire, you take as much tax-free cash as the revenue allow. What is left over you typically put into an ARF to save you paying tax there and then. You will eventually pay tax as you withdraw the money (known as a 'distribution') but it makes sense to leave it in the ARF until you need to withdraw money or are forced to do so under the rules of the 'imputed distribution' which applies from the calendar year in which you reach the age of 61.

Do you have an occupational pension in addition to a lump sum? You may not have a totally free hand with the lump sum if you do not have a minimum level of a pension.

A PRSA is not appropriate if you are retiring, that's a pension scheme typically for a self-employed person. Are you getting advice from an independent financial advisor? I have never heard of a mandatory actuarial evaluation, it sounds like an expensive exercise.

The J Stands for Jay

It sounds like you're in a company pension scheme and you want to retire earlier than the retirement age on the scheme. If the scheme doesn't allow early retirement, you can get round it by transferring to another pension. The PRSA has been suggested to you. To go from a scheme to a PRSA, the law says you need to get an actuary to do a Certificate of Benefit Comparison, and these usually cost a few grand. To avoid that, you might be able to use a buy out bond instead; they don't require the certificate of benefit comparison.

Long story short, looks like there could be other options to get what you want, but you'd need to give a lot more of your personal/financial details to is randomers on the internet, which is never a good idea. Getting some independent financial advice is probably the way to go.

coylemj

McGaggs wrote: »

It sounds like you're in a company pension scheme and you want to retire earlier than the retirement age on the scheme. If the scheme doesn't allow early retirement, you can get round it by transferring to another pension.

Not quite....

EmeraldBlue wrote: »

I am retired and wish to put my pension pot into an ARF. That bit has been decided, now I have to select an ARF.

The J Stands for Jay

coylemj wrote: »

Not quite....

Depends on the meaning of retired and pension pot. Again, just showing why being able to set out the facts to an knowledgeable person is better than getting guff from the likes of us on the internet.

ANXIOUS

You'd really need to give more information.

The PRSA would generally only come into play if you were made redundant and dependant on service you opted to wave your right to a pension lumpsum to maximize your redundancy payment and used the PRSA to wash the money and allow a need lumpsum of 25%.

EmeraldBlue

Thanks for clarifying things for me. It looks like my best option now is to go for independent financial advice.

Just Retired

Emerald Blue:

I am currently in an ARF/AMRF fund administered by a leading Insurance Provider. Prior to retiring I consulted with an Independent Financial adviser, after attending a pre-retirment course. The Proceeds of the fund (Pension Pot) were divided as Follows 25% as a tax free lump sum of the fund.Up to €200,000.00c can be taken tax free. I had to set aside €63,500.00c into an AMRF fund, as the State Pension did not exceed €12,700.00c.per annum.The balance went into an ARF fund and was/is invested in various funds with a mix of equities,Bonds,Property, & Cash, with a Medium to Low risk Providing a growth of approx 5% per annum ( to date). The paperwork comes with Warnings that the Value of the fund may go down as well as up. To date it provides me with an income on a Quartely basis, Monthly and yearly options are available. The fund is holding steady but can be subject to "Shocks" viz. Brexit, Peninsulas in East Asia, Pronouncements in certain Presidental Quarters.

Fees,i.e.management charges and so on are deducted from the Share value price, based on a percentage.Your Financial adviser will set that out for You.
The AMRF Fund: If you wish you can withdraw up to a Maximum of 4% of this fund per annum. All withdrawals are subject to TAX,USC,& and if under the age of 66 PRSI @ 4% under Class "S" is also deducted. If you do not make any withdrawal from the ARF Fund during the year the Insurance company will do one for you, whether you want to or not. (Revenue Rules)

For me it was worth paying for the Financial Advice, as the Adviser was not tied to any of the ARF Providers. It May be worth contacting some of these providers seperately to see if their set up fees etc.vary to any great degree, and compare with your financial Adviser's ones.

Irish Life,New Ireland Assurance,Zurich, Standard Life, Provide ARF's/AMRF's Policies. As stated the Fund Depletes with a longer life lived. The secret is to have your fund perform higher than what you withdraw from it. This may be possible if you switch your funds around,Seek your Financial Adviser's information on this before any switching around, my provider allows 6 switches per annum without any charge for doing so. You will receive annual statements for the policies. I will advise you meet your Adviser once per year, to see what way the funds are performing, and fine tune it to your advantage. Hope this will help.

Just retired.

EmeraldBlue

Thanks once again for the comments. I now have an understanding of the role of the PRSA and other options available to me. For clarification, I have a modest DB pension so will not require an AMRF. Looking at the broad approach it seems it is to go down the route of the large insurance companies (through a broker) or to look at an investment with a Fund Management company.

Do people have any opinions/advice on either of those? The disadvantage of the insurance company route it seems to me are the penalties if one wants to change before the investment peiod expires (changing within a provider is allowed I think). Otherwise I don't see a huge difference between the two.

coylemj

EmeraldBlue wrote: »

Do people have any opinions/advice on either of those? The disadvantage of the insurance company route it seems to me are the penalties if one wants to change before the investment peiod expires (changing within a provider is allowed I think).

With an ARF there isn't an 'investment period'. There may be a penalty if you try to move all of the money to a different company within (say) 5 years. But the general plan would be that you stay with the same company and if you choose to, you can move part or all of the money to different funds within that company depending on your approach to risk. They all allow a few moves each year with no penalty - you sell and buy at the 'bid' price so you don't get penalised by the bid/offer spread.

EmeraldBlue wrote: »

Otherwise I don't see a huge difference between the two.

Which 'two' are you talking about? AFAIK it's only life companies which can do ARFs.

The J Stands for Jay

coylemj wrote: »

you sell and buy at the 'bid' price so you don't get penalised by the bid/offer spread.



Which 'two' are you talking about? AFAIK it's only life companies which can do ARFs.

If someone tries sell you an ARF with a bid/offer spread, run a mile.

There's more than than just life companies that can do ARFs. Stockbrokers like Davy for example.

EmeraldBlue

EmeraldBlue wrote: »

...............

Also looking at the funds right now and assuming that I would take out 4% each year, then the growth prospects of what I have seen are not very encouraging, especially in the recent past. Any comments on this would be welcomed.

Thanking you.

You could invest in the likes of the VANGUARD FUNDS PLC FTSE 100 ETF INC UCITS, about 4% dividend a year iirc.

The FTSE has never been higher but it's not too far higher than the previous peaks of 2000 & 2008 ........... you buy a lot of FTSE with € at the moment too so that cancels out the current perhaps inflated price IMO.

The UK will potter along nicely over the coming decades and beyonf much as they've always done, also IMO of course.

the S&P 500 is staggeringly high compared to the 2008 peak, it's doubled over the last 5 years or something like that. Hard to suggest putting a lump of ARF into that but I'd expect the dollar to continue to weaken against the € over the coming years so that would open up some opportunity IMO,a 5% dividend S&P500 ETF is easily found too

there's an annual charge for ARFs too iirc so one must take that into account.


However,

McGaggs wrote: »

.........
There's more than than just life companies that can do ARFs. Stockbrokers like Davy for example.

Indeed, the Davy ARF option is a great tool IMO.