# ARFs and AMRFs



## DerKaiser (8 Dec 2008)

I've heard relatively little about the hit taken by ARF holders in the current market environment.

In fact the only point I've heard made regularly is that guaranteed annuities are bad value!

Is it not time that pensions legislation removed the option of the ARF and tackled the real problem by stipulating that all pensions should involve lifestyling i.e. they switch into safer assets pre retirement?


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## Don_08 (8 Dec 2008)

I still think ARFs are a good product.  A lot of people I have come across taking these out are more for inherintance planning, to pass the fund on tax free on death.  Still better than purchasing an annuity and dying a year later.

Perhaps if there are worries, the guaranteed income level shoudl be increased.


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## DerKaiser (8 Dec 2008)

Don_08 said:


> I still think ARFs are a good product. A lot of people I have come across taking these out are more for inherintance planning, to pass the fund on tax free on death. Still better than purchasing an annuity and dying a year later.


 
fair enough, they meet a need.

My main issue would be that the taxpayer is subsidising this.  I can see the benefit to society of encouraging people to guarantee themselves an income until death but fail to see how ARFs are in any way superior to annuities in achieving this


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## Don_08 (8 Dec 2008)

I wouldn't say they are superior.  They meet a need in terms of flexibility.  Its still there to provide an income in retirement, so they do deserve the tax relief on contributions.  Its just up to the person how they take the income, might not need so much in some months, and nice to take a larger sum out around Christmas for example.  

Why not - they saved for it!

I wouldn;t say the tax payer are paying for it.  If that money went into annuities instead of ARF, then there is no lump sum to be passed on at death so no tax return anyway.  Just the insurance company pockets any profit.

Not sure how you get the tax payer is paying for them?


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## Sherpa (9 Dec 2008)

Don_08 said:


> Not sure how you get the tax payer is paying for them?


 
By providing tax subsidies such as 
(a) generous tax relief on the contributions, and
(b) no tax on the investment returns on the pension fund.

I don't see why my tax euros should be used to subsidise someone salting away a nest egg that can then be passed on to their children tax free.


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## upport (9 Dec 2008)

ARF inherited by children is liable to CAT if beneficiary is under 21 and 20% income tax if over 21.


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## DerKaiser (10 Dec 2008)

Sherpa said:


> By providing tax subsidies such as
> (a) generous tax relief on the contributions, and
> (b) no tax on the investment returns on the pension fund.
> 
> I don't see why my tax euros should be used to subsidise someone salting away a nest egg that can then be passed on to their children tax free.


Exactly my point.  

There's some kind of social benefit in helping people to guarantee a minimum income from retirement to death to ensure they are not a burden on society.  This is why I believe buying an annuity should be a condition of getting the tax relief.

The only positive  I see in ARFs over annuities is the flexibility of drawdown.  This can be achieved in alternate ways such as allowing people defer the annuity take up until say 75 (the could live off other savings up to this point if they so wished) to guarantee a better income in later years.

Encouraging the elderly to invest in riskier funds (a large proportion of ARF holders do this) should not be a use of tax payers money


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## Don_08 (10 Dec 2008)

Sherpa said:


> By providing tax subsidies such as
> (a) generous tax relief on the contributions, and
> (b) no tax on the investment returns on the pension fund.
> 
> I don't see why my tax euros should be used to subsidise someone salting away a nest egg that can then be passed on to their children tax free.


 
Yes but my point is that you get these tax reliefs anyway if you invest in any pension fund.   There is no cost to the tax payer by a person choosing to take part or all of their benefits as an ARF rather than an annuity at retirement.    If you force people to buy annuities, then your tax euros are just being passed into the coffers of the insurance companies providing the annuities.


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## cerberos (10 Dec 2008)

AW for Gods sake.

The tax is deferred and paid when income is being drawn down.

Also, the more pensioners that look after themselves, the less is taken fromn the public purse.

C


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## Don_08 (10 Dec 2008)

Well said cerebos.

Actually think ARFs encourage more pension provision too - as they encourage people to make AVCs as they know they have the option to use an ARF with them on retirement, and use the money they have saved in whatever fashion they want to rather than being dictated to as to purchasing an annuity.

So more income/wealth on retirement, less medical cards to provide for over 70s, less subsidies etc etc


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## DerKaiser (10 Dec 2008)

OK to take a step back.

I think everyone is in agreement that anyone trying to provide a retirement income for themselves should be encouraged.

Tax allowances are a good incentive.  

As a tax payer I do not object to my taxes being used to encourage people to save for retirement.

There are effectively two ways to provide for retirement with your penions proceeds (only one if you are a PAYE employee); An ARF or an Annuity

The annuity guarantees a retirement income until death.  It ceases when you die.  The amount of annuity you can purchase is based on avareage age at death.  Some people see it as unfair that those living longer gain are subsidised by those who die younger.  From a society point of view this subsidy is a good thing as those who live longer will not run out of money and become a burden.

The ARF can be drawn down gradually, subject to certain rules.  The retirement income is much more uncertain, however, as it is permitted to invest in risky assets.  Someone making maximum drawdown and invested in a risky fund choice could quite possibly find themselves with an inadequate income for their later years.

As a society the benefit is not in encouraging pensioners to take risks or leave large inheritances, the benefit is that people will have an income to support them until they no longer require support.  Only one of the two products is designed specifically for this purpose.


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## DerKaiser (10 Dec 2008)

Don_08 said:


> Well said cerebos.
> 
> Actually think ARFs encourage more pension provision too - as they encourage people to make AVCs as they know they have the option to use an ARF with them on retirement, and use the money they have saved in whatever fashion they want to rather than being dictated to as to purchasing an annuity.
> 
> So more income/wealth on retirement, less medical cards to provide for over 70s, less subsidies etc etc


 
People can use their own money whatever way they like, through savings.

Pensions have strings attached e.g. you can't touch them until retirement.  This guarantees that the tax subsidy is put use for its intended purpose - guaranteed retirement income.  

As for the tax point.  To a certain extent it is only a deferral of tax (the real benefit is making full use of tax credits or the standard tax band over your lifetime rather than just in your working years) as you pay income tax in retirement.  A large proportion of ARF holders drwdown as little as possible for as long as possible minimising income tax payable until as late as possible (often death!)


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## NorthDrum (18 Dec 2008)

ARF or Annuity . . M m m m m 

I can see the advantages and disadvantages of both but think that there is a market for both.

To suggest that somebody should not have a choice at retirement (for their own good or for tax reasons) is a little bit unfair.

The idea of the ARF is to offer an alternative to annuities-

-If I am seriously Ill why should I have to buy an annuity and pass on my life savings to an insurance company?

- Why should I be forced to buy an annuity that I can never change once purchased.

- You are taxed on monies drawndown from ARF's, this encourages people to leave monies in their ARF and only drawdown when needed.

All arguements aside, At 65 I think most people have paid enough tax and done enough for the country to be afforded a small consolation in the form of an ARF option.


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## DerKaiser (18 Dec 2008)

Take 35 pensioners with €200k each are aged 65.  Say 1 dies every year until the final one dies aged 100.

If they each take out an annuity the will have a guaranteed €12k p.a. to live on, enough not to be a burden on society when added to the old age pension.

The fact that 10 of them die before 75 having only got back about half of their initial lump sum is what has made it possible for the original 35 to get a decent income i.e. the total amount of money is effectively pooled amongst the pensioners with those living longest getting the benefit of those dying early.

The alternative is that each of the 35 puts €200k into an ARF.  Assuming there's a decent possibility they'll live to 90 they might each be afraid to draw down no more than €8k p.a.  

So they all struggle by on less, the ones who die early leave behind a good inheritance but those living longest struggle on with reduced incomes.

In this way annuities basically eliminate the possibility of an inheritance in favour of higher guaranteed incomes for pensioners throughout their lives


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## liam s (2 Jan 2009)

I am a little confused about my ARF, and the budget provision of 2007.My company sent me about €1000 gross less about €560 in tax in 2007. This year the sent me €1739 gross less€713. Is this supposed to be out of profit and does it vary each year. I changed my policy to a cash one in July, so I did not lose as much as I might have.


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## boaber (2 Jan 2009)

Did you set up an annual income from your ARF?  Sounds like you were paid 1% of the value of your fund in 2007 & 2% in 2008?


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## liam s (2 Jan 2009)

boaber said:


> Did you set up an annual income from your ARF? Sounds like you were paid 1% of the value of your fund in 2007 & 2% in 2008?


That does appear to be what is happening, but I had not set up an annual income. I understand it had to do with the tax situation after the 2007 budget where I had to draw down the money annually. The company just forwarded the money to me this year. Is this correct,


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## Eithneangela (25 Nov 2009)

Am in the process of setting up an ARF.  What does the broker charge for setting this up, and what are the ongoing management costs for disbursing the funds as required.  Would really appreciate knowing this before I head into the financial hellhole out there - was burnt badly by a broker last year who charged fees on a fund which had no transaction movement for 5 years, the fees being more than 10% of the value of the fund.


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## LDFerguson (25 Nov 2009)

Broker commission on an ARF can be anything from 0% to 5% depending on the broker and product.  The product provider will often subsidise this, especially for larger amounts.  

Annual management charge will usually start at 0.75% and can go up to 2%+, especially if the broker is taking ongoing commission for ongoing advice / service.  

A broker should detail all the relevant charges before you commit yourself.  

Liam D. Ferguson


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## Eithneangela (25 Nov 2009)

Many Thanks, LD.  I'm kind of horrified at the annual charges - looking at Quinn-Life who charge 1.5% plus a fixed fee, but at least you can use your own intelligence and savvy to invest your money, rather than paying money to a third party who has no interest or real knowledge of equity movements on a real-time basis.  Regards.


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## GSheehy (26 Nov 2009)

Eithneangela said:


> - looking at Quinn-Life who charge 1.5% plus a fixed fee,..


 
That does not sound right. Granted, some of the QL Funds have an annual management charge of 1.5% but there are also ones available at 1.2% and 1%. If you are dealing directly with QL, I doubt if they are charging you a fixed fee also (Yes/No) ?

If you are comfortable choosing the provider, product and funds yourself then an 'execution only' service is the way to go. You should be able to buy the product with just the management charge as the only charge.

GS


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## Eithneangela (26 Nov 2009)

Hi GSheehy
What is an 'execution only' fund.  I'm more than happy to play around with the Quinn Life Freeway offerings with my own money, as there are ample opportunities to switch if one is watching market trends and basing predictions on those and gut feelings.  Much rather that than have my fun dissipated inactive and uncaring broker.  (I've been burnt - it still hurts).


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## GSheehy (27 Nov 2009)

An 'Execution Only' _Service_ is where you choose the provider, product or funds. As opposed to an 'Advisory' Service, where you pay someone else for their advice on provider, product and investment funds.

There are some samples of these types of services on this thread.

GS


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