As a 70 year old couple with one moderate annuity pension from work, one state pension( OAP) and one private ARF pension,we're wondering about converting the Irish Life ARF to an annuity. It's about €250k, reducing each year via withdrawal of 4%. We have no expertise in managing the ARF, but fear there will be very little or nothing left in later years, and at least there would be some guaranteed income with an annuity. Is it a good or bad time in current financial climate to look at buying an annuity?
ARF vs buying annuity in current climate
- Thread starter Lucyfarr
- Start date
This came up a few times recently.
Key Post - People should consider buying an annuity on retirement
Why an Annuity matters to an ARF investor How should one approach investing an ARF? As we set out in our [broken link removed] for retirement planning in Ireland, an investor’s risk tolerance is only one of several factors that go into the decision to go into an ARF. A far more appropriate...
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Life - Are annuities still available these days on the Irish market?
Are annuities still available these days on the Irish market ? If so ; 1. What are the returns like ? 2. Is capital deposited to buy the annuity secure / guaranteed or at any risk ? I had one some years ago with Norwich Union in Ireland. I had a lump sum for which I wanted a home for about 5...
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Case study - ARF v Annuity
I know this an old chestnut but maybe the landscape is changing. I'm 59 and plan to begin drawing a pension from a pot forecasted to be worth €540,000, in just over 2 years time. I'll be 61 then and plan to withdraw the 25% TFLS which will leave me with c€400,000 to invest. Any time I've...
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Annuities - impact of recent rate rises
As interest rates are starting to rise again, at what point will annuities start to become attractive again, and how far away are we ? I had just assumed I would be going down the ARF route when the time came, but the interest rate landscape might well be very different over the next 5 years...
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Lucyfarr
Annuities have certainly become more attractive following the recent rise in interest rates. The attraction of Annuities is that they offer income certainty, but it does mean that you lose control of the capital sum.
If you buy a single life Annuity (based on one life only), you will certainly get an Annuity rate over 5% (more than the minimum drawdown from the ARF). If you go for a joint life Annuity the figures will be lower.
A important factor will be your state of health. If your health is good and family history is good, then an Annuity might be a reasonable bet. If not stick with the ARF.
If sticking with the ARF you need to consider your investment strategy. Investing in Cash (say) will generate a very low return and with a 5% drawdown, the net result will be a gradually reducing ARF pot. Taking a less conservative investment strategy might generate a better long term return but involves investment risk, which might or might not pay off.
You need to get professional advice and run the numbers.
Annuities have certainly become more attractive following the recent rise in interest rates. The attraction of Annuities is that they offer income certainty, but it does mean that you lose control of the capital sum.
If you buy a single life Annuity (based on one life only), you will certainly get an Annuity rate over 5% (more than the minimum drawdown from the ARF). If you go for a joint life Annuity the figures will be lower.
A important factor will be your state of health. If your health is good and family history is good, then an Annuity might be a reasonable bet. If not stick with the ARF.
If sticking with the ARF you need to consider your investment strategy. Investing in Cash (say) will generate a very low return and with a 5% drawdown, the net result will be a gradually reducing ARF pot. Taking a less conservative investment strategy might generate a better long term return but involves investment risk, which might or might not pay off.
You need to get professional advice and run the numbers.
Thank you Clubman, I should have spotted those,forgive me, I'm a newbie here
@Lucyfarr
You should be able to buy an annuity with 100% Spouses and get an annuity rate of circa 5.5% at the moment.
Gerard
www.pensionannuity.ie
You should be able to buy an annuity with 100% Spouses and get an annuity rate of circa 5.5% at the moment.
Gerard
www.pensionannuity.ie
@GSheehy previously posted this in another thread in case the annuity calculator linked there is of any use just for rough indicative purposes.
Maturing pension / Buyout Bond at age 50: two options, annuity versus ARF versus lump-sum
Person coming up to age 50, currently employed in public service. Previous DC pension from previous employment is currently in a Standard Life Buyout Bond. Value is 48k. Person wants to get access to some cash, as far as I know, and has been presented with these two options by Standard Life...
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NoRegretsCoyote
Registered User
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Or have rates just adjusted upwards in line with greater expected inflation?
Is there better value in inflation-adjusted terms?
If there is I’d be keen to see it.
Just to be clear, I only linked to the post with the Irish Life annuity calculator because I believe that it's the only public one available and it was provided, as I stated, for rough indicative purposes. It wasn't an endorsement of Irish Life just in case anybody thought that it was.
Donal O'Keeffe
New Member
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- 8
I know this a 2-year old post however for new readers it is worth pointing out that the pensioner is withdrawing 4% from their ARF, and the fund reduces each year which indicates that the net investment return is less than 4%, which is very poor. Pension companies advise investing in low growth ARFs which typically have low volatility, however the client is guaranteed to get poorer each year. Irish annuities did offer an even worse return, but currently offer more than 4% with 2% annual escalation, or over 5% flat.
My retirement funding strategy is to remain invested in a 60% equities / 40% bonds pension fund right up to retirement, and at retirement invest in a in a 60/40 ARF investment till the day I kick the bucket. In addition, I have €340k of my pension funds in cash to be drawn-down on retirement as a lump sum.
As I have a state pension for the wife and I, and some other income, and a decent amount of cash, I can live with the higher year to year volatility of a 60/40 investment knowing that the long term return is significantly higher than the low performance funds recommended by pension providers who believe everyone rates year to year volatility before growth. Refer to the table found at this link for information on the 100-year performance of different investment mixes from 100% bonds to 100% equities. financialsamurai.com/historical-returns-of-different-stock-bond-portfolio-weightings/
My retirement funding strategy is to remain invested in a 60% equities / 40% bonds pension fund right up to retirement, and at retirement invest in a in a 60/40 ARF investment till the day I kick the bucket. In addition, I have €340k of my pension funds in cash to be drawn-down on retirement as a lump sum.
As I have a state pension for the wife and I, and some other income, and a decent amount of cash, I can live with the higher year to year volatility of a 60/40 investment knowing that the long term return is significantly higher than the low performance funds recommended by pension providers who believe everyone rates year to year volatility before growth. Refer to the table found at this link for information on the 100-year performance of different investment mixes from 100% bonds to 100% equities. financialsamurai.com/historical-returns-of-different-stock-bond-portfolio-weightings/
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Flybytheseat
Registered User
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I've a similar view though a higher equity allocation (70%) and less in bonds (15%) and less in cash (7%). I feel i'm being conservative but also feel that equity markets (in particular the S&P500 and Nasdaq) are very overvalued at the moment so I'll wait for the inevitable 20-30% correction due sometime later this year before I rebalance to 80% equities. I'm not a fan of bonds in the medium term as I feel inflation in the US (with the rest of the world contaminated) is inevitable given current US government policies and that will depress bond prices (though raise their yields). It's not rocket science but best to target 5.5-6% returns per year to slow fund depletion given 4% withdrawal and 1.5%-4% inflation.
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Hi Clubman. Here is Zurich’s annuity calculator.
It’s more sophisticated than IL in that it also models a comparison with an ARF.
When I bought my annuity New Ireland was offering the best rate which Zurich subsequently matched.
It’s more sophisticated than IL in that it also models a comparison with an ARF.
When I bought my annuity New Ireland was offering the best rate which Zurich subsequently matched.
Donal O'Keeffe
New Member
- Messages
- 8
Had a look at the Zurich Calculator. Splitting 50/50 between an Annuity and a ARF might be worth looking at. Also, a flat rate Annuity is better value up to age 89, from that age onwards an indexed Annuity with 2% annual increase becomes a better performer. So, how long do you think you will live, and would you prefer a bit more cash when younger? Assuming an Irish OAP for oneself plus wife, plus a ARF, plus an Annuity, one can afford to select the higher risk / higher reward ARF investment strategy.
Something else; if considering retiring to France, according to the current DTA, the Annuity and Irish State OAP are Taxed in France, but the ARF is considered to be a "post retirement investment" and not a pension, and is always Taxed in Ireland. An ARF investment of €720,000 paying 5% or €36,000 per year would be completely Tax free in Ireland, assuming a married couple. Then there's the French Income Tax on the rest, but at a much lower rate than in Ireland. In France the Social Charges (PRSI) are greater than the Income Tax, the split could be about 60/40 Social Charges/Income Tax. When you present an Irish S1 form to the local French taxman, no Social Charges are payable in France (or any other EU country), and in Ireland, PRSI stops at age 66 years when State OAP entitlement starts.
I have not yet figured out if the French include an Irish ARF which is taxed in Ireland, in their calculation, does anyone know about that?
Something else; if considering retiring to France, according to the current DTA, the Annuity and Irish State OAP are Taxed in France, but the ARF is considered to be a "post retirement investment" and not a pension, and is always Taxed in Ireland. An ARF investment of €720,000 paying 5% or €36,000 per year would be completely Tax free in Ireland, assuming a married couple. Then there's the French Income Tax on the rest, but at a much lower rate than in Ireland. In France the Social Charges (PRSI) are greater than the Income Tax, the split could be about 60/40 Social Charges/Income Tax. When you present an Irish S1 form to the local French taxman, no Social Charges are payable in France (or any other EU country), and in Ireland, PRSI stops at age 66 years when State OAP entitlement starts.
I have not yet figured out if the French include an Irish ARF which is taxed in Ireland, in their calculation, does anyone know about that?