Approved Retirement Fund

An option available to you at retirement is to invest your pension fund in an Approved Retirement Fund (ARF). ARFs are special investment funds which can give you increased flexibility in terms of how you use your pension fund after retirement.

With an ARF you manage and control your pension fund. You can be happy in the knowledge that you can withdraw as much of this as you wish, should you ever need to. Any withdrawals you take from your ARF will be subject to income tax*, the Universal Social Charge and PRSI (if you are liable for this). In the meantime, the fund will continue to be invested in funds of your choice.

Conditions for investing in an ARF

Before you invest in an ARF, you must either:

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Imputed Distribution

One of the rules governing ARFs is that tax, Universal Social Charge and PRSI, if applicable, must be deducted as if income were taken, even if no income is taken in a particular tax year. Below we explain how this is applied to an ARF.

From the year you turn 61, tax is payable on a minimum withdrawal on the 30 November* each year of 4% of the value of the fund at that date. This withdrawal is liable to income tax, Universal Social Charge and PRSI, if applicable. From the year you turn 71 the minimum withdrawal is increased to 5%.

Where the fund value is greater than €2 million the minimum withdrawal will be 6%. If you have more than one Approved Retirement Fund (ARF) and these are with different managers then you must appoint a nominee Qualified Fund Manager (QFM) who will be responsible for ensuring a withdrawal of 6% is taken from the total value of your ARFs. It is your responsibility to let your ARF providers know if you have other Approved Retirement Funds and Vested Personal Retirement Savings Accounts with a total value of greater than €2 million.

Where a greater withdrawal is made during the year, the tax will be paid on the greater withdrawal amount. The minimum withdrawal rate is set in line with the required imputed distribution amount which may be altered to reflect changes in legislation. You can choose to take a higher withdrawal amount if you wish. 

You should seek advice on whether it is appropriate to draw down the 4%/5% or 6% of your fund value.

What is an AMRF?

Before an individual can take out an ARF (Approved Retirement Fund), up to €63,500 of their fund must be used to purchase an Approved Minimum Retirement Fund or AMRF. An individual AMRF holder can access up to 4% of the value of the assets each year as a once-off withdrawal. Any distribution is taken from the AMRF can be used to reduce the minimum distribution amount from the ARF assets in that year.

In certain circumstances, an individual can take out an ARF without having to also take out an AMRF. If the person has a guaranteed income of over €12,700 per annum including the state pension then an AMRF is not required. With an AMRF you can only draw investment growth before age 75. If subsequent to taking out an AMRF the individual qualifies for a guaranteed annuity of €12,700.00 either through State pension or other sources the AMRF is reclassified as an ARF, likewise when the individual reaches 75 YOA.

ARF Funds – Tax Treatment on Death

Spouse’s / Civil Partner’s ARF – No income tax –  Subsequent withdrawals subject to PAYE. No Inheritance Tax (Spouse / Civil partner exemption)

Child under 21 – No Income Tax.  Yes, Taxable Inheritance.

A child over 21 – Yes Income Tax Subject to 30% income tax.  Exempt from inheritance tax

Other – (Incl. to spouse/civil partner directly) – Yes Income Tax Treated as income of deceased in the year of death. By default, QFM deducts higher rate income tax at source under PAYE. Inheritance Tax. Taxable Inheritance (spouse/civil partner exempt)

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