# ARF or Property??



## Switchornot (1 Mar 2017)

I would appreciate any advice/opinions on the following situation as it is not a subject I am knowledgeable on.  My dad recently retired at 64 and will have a DB pension income of approx. €45k per annum into the future. He is maxing out the tax-free lump sum he can receive as part of the DB pension arrangement (i.e. has hit the 200k limit).

He also has a separate DC pension pot of approx. €100k from a different employment - he now needs to make a decision on what to do with this 100k.  He was considering buying a relatively cheap rental property with these funds but it now appears that he would only receive 50k if he drew down the full 100k as he would be subject to tax at the marginal rate.

He has been to see a financial advisor.  The advisor has suggested that he put the full 100k into ARF as he would then avoid income tax on the 100k.  We aren't really knowledgeable on ARF's (or pensions in general) so does this seem like sound advice?

My concern is that he is only deferring any tax hit and that the 4% he draws down every year will be subject to tax at the top rate anyway.  One other point worth noting is that my mom (also 64) does not have sufficient income use her full 20% rate band - is there any way to transfer the ARF (or ARF income) to a spouse?

Thanks in advance!


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## Steven Barrett (1 Mar 2017)

Rental income will be taxed at the same rate as imputed distribution from his ARF. 

Buying a relative cheap property for €100k is a very cheap property. There's not much you can get for that. And he has tied up all his retirement fund. At least with an ARF, he can access the cash if he needs to (and pay income tax on it). 


Steven
www.bluewaterfp.ie


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## Gordon Gekko (1 Mar 2017)

€100k worth of iRes might be better...


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## Switchornot (1 Mar 2017)

Thanks for your input.  It sounds like a direct investment in property is not the way to go - properties are available in the area he is looking in for that price but the yield would be low and there isn't a constant demand for rental property.  At least with an ARF, the full tax hit is avoided for now (apart from on the annual 4% payment) and hopefully over time, the investments on that tax differential will earn a decent return.


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## Steven Barrett (2 Mar 2017)

Switchornot said:


> Thanks for your input.  It sounds like a direct investment in property is not the way to go - properties are available in the area he is looking in for that price but the yield would be low and there isn't a constant demand for rental property.  At least with an ARF, the full tax hit is avoided for now (apart from on the annual 4% payment) and hopefully over time, the investments on that tax differential will earn a decent return.



It looks like an investment property would be a terrible investment then. All his eggs in one basket and one that isn't earning much. 

The only time I came across people cashing in their ARF at maturity was during the recession and these were people cashing in their pension pots to provide funds to keep their businesses afloat. 


Steven
www.bluewaterfp.ie


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## Switchornot (2 Mar 2017)

Thanks Steven - do you know if it is possible to transfer a pension pot or ARF to a spouse?  Or alternatively, if it is possible to transfer the income to a spouse?  They have almost 20k of unused standard rate band available but this can only be used if the income is in my mom's name.


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## Conan (2 Mar 2017)

An ARF can transfers to a spouse on your death (not what you have in mind - I presume). Otherwise, no.
Equally a pension income or drawdown from an ARF cannot be transferred to a spouse.


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## jjm (9 Mar 2017)

Hi all I have being asked by a friend what is the cheapest way/best of setting up ARF the position is he wants to take his lump sum out he has around 540000 euro in total pot .He has already checked and he can take 135000 of a lump sum  leaving 405000 Euro to put into an arf he has being told he has to put around 65000 into ARMF  leaving around 340000 for A R F .He is looking for the best way to invest in an ARF .What he really is after as I understand is he wants to get his hands on the lump sum without having to make make a rash decision on how to invest balance of the pension pot.
Can he put balance  into  ARF cash Account while he decides what to do long term


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## Steven Barrett (13 Mar 2017)

Hi Jim 

Yes, he can just leave it in cash until he is ready to think about what investment strategy he wants. Cash isn't a good long term strategy though as it will lead to his ARF running out over time...but that's only if he just leaves it in cash. 

When choosing an investment strategy, he should think what he wants the fund to for him over time. What does his retirement look like? And what other resources has he in place. When he has an idea of what his retirement life looks like and then costs, he can work backwards to see the level of returns he needs to take with his money. 

Steven 
www.bluewaterfp.ie


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## jjm (13 Mar 2017)

Thanks Steve I will check with him. I think he is to meet pension providers one of these days.I will be talking to him later today .


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## Steven Barrett (13 Mar 2017)

Is he meeting an independent financial advisor or going direct to the life companies? If he's going direct, he will be greeted by someone from the direct sales team who can only offer their company's product and who eat what they kill. No sale, no pay. 


Steven 
www.bluewaterfp.ie


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## jjm (13 Mar 2017)

More information He had a meeting this morning With pension providers..Back ground started working in same company as myself 12 months ago before then he commuter a long distance to work he changed jobs as he approached retirement age .pension was left in old company until now they were paying fees . The people he met were the pension providers who got paid to look after pension in old company.The meeting went something like this once it goes into an ARF  he pays the Fees Best they can do is .0.5% management fees + they also take 2% up front of the 405000 to set ARF up they only restrictions are he has to leave 65000 euros in it until he reaches 75 years he can take 25% lump sum now of around 135000 euro.the balance of around 405000 goes into an ARF this is the best they can do.He is not really interesting in taking out more than the 4% from ARF each year.


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## jjm (13 Mar 2017)

Steven. Do you think he would get a better deal if he shopped around.Should he be looking for a better deal for his 405000 he has no reason to take more than 4% each year.If he is to go with the offer his 405000 will be 396000 is he paying over the top seeing he has no interest in taking out any more than 4% per year from ARF. ARF fund is Irish Life he is allowed to change fund without being charged.


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## JoeRoberts (13 Mar 2017)

[broken link removed]

The pensions council had this report in 2016 which shows a wide variability between ARF charges. So worth shopping around.
Also interesting to note one of their conclusions was that the longer the ARF is held, the higher the charges. I guess the advice then is to look at new offerings each time you reach the period when you can terminate it without charge.


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## jjm (13 Mar 2017)

I don't think there was anything said about ongoing charges . Thanks JoeRoberts.


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## Steven Barrett (14 Mar 2017)

The management fee is cheap but the initial set up charge of 2% is expensive. What are they doing for €8,100? The 4% is the minimum required, he doesn't have to take out more but he should have the option...just in case. As they are deducting the 2% directly from his fund, there should be no early exit penalties ie he can move his money at any time or take out a large lump sum without penalty. 

Did they also explain what ongoing service they will be providing? The ARF is an investment he will probably have for the rest of his life. Who is going to provide him with ongoing advice? The person who sold him the product or Irish Life's customer service dept? 

Your colleague needs to have a think about what he is looking for. What does he want regarding advice, future plans. What concerns him about money. When he knows this he should ask whoever he talks to can they provide what he is looking for. He can then talk about product and charges. 




Steven 
www.bluewaterfp.ie


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## jjm (14 Mar 2017)

Thanks Steven I will print out post so he can make up his mind.


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