# ARF or not ?



## Whiskey (31 Aug 2010)

My mother (married) who will retire in November (nurse) has paid about 15% of gross salary into a pension (including an AVC) for the past number of years.

As a last minute tax break, she was thinking about topping up her AVC to use her maximum allowable tax deductable pension contribution for 2009 and 2010

Let's say she can put 20'000 lump sum into the AVC now. She will get full income tax relief on all of this.

She can claim back tax at the 20% rate (or is it 21%) on all of this......and PRSI. Lets say the combined salary of my parents is 81'000.
Correct me if I'm wrong, as a ballpark she might get a refund of say 5'000 from revenue...

The 20'000 would go into an AVC, and then an ARF.......

The guys at Zurich take a 5% of the money they receive into the AVC (sounds a lot but it's true). And they take again another 3% to set up an ARF. That's about 1600 fees (the 20'000 becomes 18'400)

My mother can take out the 18'400 from the ARF next year (without paying any tax on it, because her income will be small)

Sounds like a good bet, doesn't it ?
Or are my maths wrong ?

She has been advised by an accountant not to go ahead (on the grounds that the fees are too high, and it's too complicated, and too risky !!

I know nothing about AVCs and ARFs apart from what I read on the internet last night (mostly on AAM) over the course of about 2 hours ! but I think my mother should put the 20'000 in the AVC and set up an ARF......

Am I right ?


----------



## GSheehy (1 Sep 2010)

She can avoid the €1,600 in up-front costs by setting up the product/s on an execution only basis (no advice) but that would mean that she completes the documentation and selects funds etc.

She would also have to set it up outside of the current AVC arrangement and claim Tax & PRSI Reliefs separately.

Just another option for her to consider.


GS


----------



## Whiskey (2 Sep 2010)

Thanks

Are you sure it's possible to avoid the 1600 costs ?

For my mothers AVC, 5% of everything she pays in from her salary is taken by Zurich......that's the way it has been ever since she set up the AVC years ago

Cornmarket told me that Zurich will take 5% of a lump sum payment too (cornmarket will take nothing, because its execution only)


Does everyone who has an AVC pay 5% fees on all the money that goes in

It sounds an aweful lot, my parents are incredibly naive, they are an easy target for anyone to charge them fees, they question nothing.......

Recently I've taken an interest in their financial dealings, I'm trying to help them


----------



## mula (4 Sep 2010)

> Cornmarket told me that Zurich will take 5% of a lump sum payment too (cornmarket will take nothing, because its execution only)


this 5% goes do cornmarket if it was execution only there would be no 5% charge 



> The guys at Zurich take a 5% of the money they receive into the AVC  (sounds a lot but it's true). And they take again another 3% to set up  an ARF. That's about 1600 fees (the 20'000 becomes 18'400)


again the 3% is paid by zurich to cornmarket if it was execution only there would be no 3%



> she can claim back tax at the 20% rate (or is it 21%) on all of  this......and PRSI. Lets say the combined salary of my parents is  81'000.
> Correct me if I'm wrong, as a ballpark she might get a refund of say 5'000 from revenue...My mother can take out the 18'400 from the ARF next year (without paying any tax on it, because her income will be small)
> 
> Sounds like a good bet, doesn't it ?
> Or are my maths wrong ?


as she has been advised to put this into an arf i am presuming she will have taken her max tax free cash from her avc? if so how can she take 18,400 tax free next year? what is her superannuation pension going to be?

what about early drawdown charges on the ARF? i doubt 18400 can be taken out in year one without a large penalty being applied.



> She has been advised by an accountant not to go ahead (on the grounds  that the fees are too high, and it's too complicated, and too risky !!
> 
> I know nothing about AVCs and ARFs apart from what I read on the  internet last night (mostly on AAM) over the course of about 2 hours !  but I think my mother should put the 20'000 in the AVC and set up an  ARF......
> 
> Am I right ?


on the figures you have given i doubt it. Worst scenario is she is taxed on the way out at 20% which cancels out the tax relief given.Then take cornmarkets charges and early exit fees she could end up being down over 8%

i would get independent advice on this before she proceeds.

mula


----------



## Duke of Marmalade (4 Sep 2010)

_Whiskey_, it's difficult to be definitive without knowing all the facts.

As a simple rule, from a purely value for money point of view, the AVC/ARF proposal makes sense if the tax on the ARF is expected to be less than the tax relief on the AVC.

You say your mother will get 20% tax relief on the AVC. The ARF would need to be taxed at less than that to make sense. This could happen in either of two ways:

1) The ARF might be able to be taken as an increased Tax Free Lump Sum.

2) If not taken as a TFLS then it may be possible to time its draw down so that your mother stays outside the tax net, but if any drawdown would tip your mother into a tax bracket then that would cancel out the tax relief on the AVC.

Some other thoughts. 

If your mother's income in retirement is very low she may be prohibited from accessing the ARF until age 75 (not sure whether this rule applies to AVC sourced ARFs.)

The combined costs of 8% are high. They may, as has been suggested, be reduced by doing through the Internet rather than through the broker.  On the other hand I think she does need some professional advice and that is worth something.


----------



## Anfear (6 Sep 2010)

It would be interesting to know what the 'accountant' proposed as a better alternative, and what objective figures the 'accountant' had to back up his / her recommendation. Agree with Duke of Marmalade, good professional advice may be an option. Brings to mind what Red Adair (deceased) said once, 'if you think hiring a professional is expensive, try hiring an amateur!'


----------

