# Can I take 25% in cash and invest in a ARF/AMRF of my choice or must I buy an annuity



## frank marcon (13 Feb 2007)

I have a Co. Pension since 1979 and have contributed 400000 euro in AVC. Can I take 25% in cash and invest in a ARF/AMRF of my choice or must I buy an annuity as my provider says. I am 65 next year.
Frank


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## jpd (13 Feb 2007)

*Re: When can I take my AVC benefits?*

It is not possible to give an answer without more information - you do not say whether you are an employee, self-employed, director or what kind of pension scheme is concerned ?


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## Conan (13 Feb 2007)

Frank,
Assuming you are a member of a Company pension plan, plus the AVC plan, then your options are as follows:

If you are a 5%+ shareholder (Proprietary Director) then you can take 25% of the total tax-free (Company Plan + AVC Plan). The balance can be invested into an annuity or an ARF or a mix of both.
If you are an employee (not a Proprietary Director) then you can only take a tax-free lump sum of up to 150% of your Final Salary (incl bonuses, BIK etc). Any balance in the Company plan must be used to buy an annuity. The AVC fund can be used to invest in an ARF or buy an annuity.
Hope this clarifies the position.


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## cormacol (15 Feb 2007)

Conan said:


> Frank,
> Assuming you are a member of a Company pension plan, plus the AVC plan, then your options are as follows:
> 
> If you are a 5%+ shareholder (Proprietary Director) then you can take 25% of the total tax-free (Company Plan + AVC Plan). The balance can be invested into an annuity or an ARF or a mix of both.
> ...


 
Just to note that the balance of AVCs can also be drawn as taxable cash


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## kildalkeyjoe (15 Feb 2007)

I am in a similar position and interested to know if there are any groups trying to have this changed? I believe the mandatory purchase of a anuity is inequitable and we should be treated the same as personal pension plans. Can anyone explain to me why this is the position


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## Conan (16 Feb 2007)

kildalkeyjoe,
Is it inequitable that some have to buy an annuity and others have the options of an ARF?

The original intention of all pension planning was to get a pension on retirement, i.e. an income for life in retirement.
When Charlie McCreevy introduced ARFs he effectively said that Company Directors and Self Employed were financially astute enough to work out the difference between an annuity and an ARF and make an educated choice.
Charlie was not a "nanny state" type of Minister, but still took the view (or his civil servants did) that you could not give the ARF option to everybody.
If you did make the ARF available to all, what about those in un-funded pension schemes i.e. civil servants?
The ARF route is not necessarily a win/win situation. Depending on the investment performance of the ARF fund, the rate of drawdown and how long you live in retirement, the ARF fund could diw before you do. The annuity wont.
There is no easy solution. The Minister could make the ARF facility available to all in Defined Contribution plans, but technically its difficult to do so for Defined Benefit plans and impossible (?) for un-funded pension schemes.


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## Azriel (16 Feb 2007)

Possibly because annuitues provide a guaranteed income for life, ARFs do not. ARFs give rise to the possibility of money running out in retirement.


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## kildalkeyjoe (18 Feb 2007)

I appreciate your comments.  I did not suggest ARFs should be available to everyone obviously it does not arise in the case of unfunded pensions as there is no specific amount to invest. Many people have substantial funds accumulated in defined contribution schemes due to astute negotiations with employers and the sacrifice of salary in past years.  I understand there are conditions attaching to ARFs and AMRFs perhaps a level could be set below which there might be no option other than an annuity.
  However in the case of persons with a substantial fund such as Frank it is indeed inequitable to be forced to purchase what may be an uncompetitive/unsuitable product simply because of the route by which they accumulated their funds. I would also point out that everybody has the option to purchase an annuity if it is right for their circumstances.
I have a little more time than Frank and intend to campaign to have this changed. Any advice or help in this would be much appreciated.


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## clon (22 Feb 2007)

I have a family member that is in a similar boat to Frank Marcon. Does the one and a half times final salary that can be taken tax free include overtime payments ? ( I know it includes BIK and bonuses).

Also, substantial funds are in a company AVC that is invested in an eaglestar fund, do I take it that 25% of this fund can be taken tax free on retirement( I'm not including the defined benefit part in what I am saying here).

Also,  can the ARF that is chosen on retirement be the same choice as for a PRSA fund, i.e after retirement can the money that is in the eaglestar AVC fund be transferred to another pension product of my choice , not just the 4 AVC funds that I have the choice of through the company scheme ?

The basic theory of pensons is simple enough, but I find the detail more messy.
Cheers.


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## Conan (22 Feb 2007)

If your family member is not a 5%+ Director then the options are as follows:

Up to 150% of Final Salary can be taken as a tax-free lump sum from the main scheme. The definition of Final Salary will be in the Scheme rules and may possibly include BIK, bonuses and overtime (averaged over the last 3 years). However includong overtime is unusual (but permissable under Revenue rules). The defined benefit pension is then reduced by the pension equivalent of the cash taken.
In relation to the AVC fund it is not possible to take 25% tax free in addition to the 150% of Final Salary. The overall max tax-free lump sum is the 150% figure. The AVC fund can be used to buy an additional Annuity or invested into an ARF.
The ARF is a seperate product from the AVC fund. That said, it is likely that the ARF will offer similar investment funds in which the ARF cash can be invested (depending on what ARF provider is chosen).
If your family member is a 5%+ Director then they can take 25% of all fund as a tax-free lump sum.

Hope this clarifies.


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## Guest126 (22 Feb 2007)

Two points in relation to the post above.

The revenue max tax-free cash allows for all taxable earnings (inluding overtime & bonus etc) so there is no reason the trustees of the scheme would not allow a member to take this revenue max tax-free-cash.

Also - if the member is not a 5% director - so can't take entire benefits to ARF...and if it is a Defined Benefit (DB) scheme...then it would be a wise decision to fund the 1.5 times final salary from the AVC and thereby not reduce the pension by taking the tfc from the defined benefit pension (in addition schemes usually use penal rates to reduce the pension when member takes tfc from a db scheme).


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## clon (22 Feb 2007)

Conan said:


> If your family member is not a 5%+ Director then the options are as follows:
> 
> Up to 150% of Final Salary can be taken as a tax-free lump sum from the main scheme. The definition of Final Salary will be in the Scheme rules and may possibly include BIK, bonuses and overtime (averaged over the last 3 years). However includong overtime is unusual (but permissable under Revenue rules). The defined benefit pension is then reduced by the pension equivalent of the cash taken.
> In relation to the AVC fund it is not possible to take 25% tax free in addition to the 150% of Final Salary. The overall max tax-free lump sum is the 150% figure. The AVC fund can be used to buy an additional Annuity or invested into an ARF.
> ...


 
Thanks for that Conan, that clarifies it


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