# Finance Bill changes ARF minimum drawdown rate from 5% to 4%, for those under 70



## Brendan Burgess (24 Oct 2014)

http://www.irishtimes.com/business/...change-will-extend-arfs-to-25-years-1.1974923



> At 5 per cent, the fund would be fully used in 20  years. With many people living into their 80s and enjoying 25 years or  more of retirement, it was argued the 5 per cent figure would lead to  people living their final years in penury.
> 
> 
> Revenue  has clearly acknowledged the argument, and the Finance Bill lowers the  imputed drawdown rate to 4 per cent, meaning an ARF will now last 25  years after retirement.


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## GSheehy (24 Oct 2014)

The imputed distribution rate for ARFs and vested PRSAs has been reduced from 5% to 4% where the owner is aged between 60 and 70 the total fund is less than €2m


...in addition

i)  A maximum annual withdrawal of 4% (subject to taxation) will be allowed from an AMRF (instead of existing access to accrued income and gains).

ii) Changes to how the Standard Fund Threshold works where there is a Pensions Adjustment Order in place so that the member and non-member spouse share any tax charge.


That's a really good move on the AMRF.


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## Conan (24 Oct 2014)

Not wishing to be overly pedantic, but I was amused by the IT article stating that at 5% drawdown, the fund would be "fully used up" in 20 years. The Revenue rule is/was that you take 5% of the ongoing fund value each year, so even if you ignored any investment performance, as the fund value gradually reduced so does the value of the 5% drawdown. So in fact the fund would not be "fully used up" after 20 years.
Apart from that, it would be not unreasonable to assume some modest investment growth over 20 years, so extending the term. 
That said, the reduction to 4% as a minimum drawdown is welcome, particularly in the light of deposit rates (which tends to be the investment choice for many ARF holders). Hopefully the 4% will be extended to all age categories in time.
The change in relation to AMRF's is equally welcome as it simplifies the drawdown process.


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## Sarenco (24 Oct 2014)

Conan said:


> Not wishing to be overly pedantic, but I was amused by the IT article stating that at 5% drawdown, the fund would be "fully used up" in 20 years. The Revenue rule is/was that you take 5% of the ongoing fund value each year, so even if you ignored any investment performance, as the fund value gradually reduced so does the value of the 5% drawdown. So in fact the fund would not be "fully used up" after 20 years.
> Apart from that, it would be not unreasonable to assume some modest investment growth over 20 years, so extending the term.
> That said, the reduction to 4% as a minimum drawdown is welcome, particularly in the light of deposit rates (which tends to be the investment choice for many ARF holders). Hopefully the 4% will be extended to all age categories in time.
> The change in relation to AMRF's is equally welcome as it simplifies the drawdown process.


 
The other point of course is that there is no obligation to actually spend any of the amount drawn down - the point of compulsory drawdowns is simply to avoid an indefinite deferral of tax. While I agree that the change is to be welcomed, it does strike me that the courting of the grey vote is becoming increasingly blatant.


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## Homer (4 Nov 2014)

Conan said:


> The change in relation to AMRF's is equally welcome as it simplifies the drawdown process.



I agree that the new approach is simpler.  

Having said this, I presume that the option to draw down the investment return will no longer apply when the new regime comes in next year.  Therefore, if the AMRF achieves returns in excess of 4%, the amount that can be drawn down under the new regime will be less than the amount that could have been taken under the existing regime. 

Also, although not explicitly stated, I presume there will not be a deemed distribution under an AMRF if the policy holder decides not to draw anything down from their AMRF.


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## Gerry Canning (4 Nov 2014)

If I have put in k100 into AMRF does that mean that each year I must draw down 4% ie k2.5.?

In other words I can leave fund to grow,and only ever be hit for the forced k2.5 on tax.


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## Conan (4 Nov 2014)

Gerry, 
The current maximum investment into an AMRF is €63,500. From 2015, the maximum drawdown will be 4% of the value at the end of each year (so circa €2,540+ initially).


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## Homer (4 Nov 2014)

Gerry Canning said:


> If I have put in k100 into AMRF does that mean that each year I must draw down 4% ie k2.5.?
> 
> In other words I can leave fund to grow,and only ever be hit for the forced k2.5 on tax.



As far as I know, there is no intention to impose a deemed distribution tax on AMRFs.  You have the option to take up to 4% each year from 2015 onwards, but you will not be hit for tax if you decide not to draw anything down before age 75.  

From age 75 onwards, it will convert into an ARF and will be subject to the normal 5%/6% deemed distribution rules.

That's my understanding of the current position, but if anyone disagrees, please post your understanding of the position.


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