Fixed Term Annuities

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Allpartied

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I have seen these products advertised by pension companies in the UK.
Are they available to retirees in Ireland.
For example, if I retire at 60, and expect to get a full Irish State Pension at 66, along with a complete UK state pension at 67, could I use my Retirement fund of 135k ( after tax free lump sum is deducted) to purchase a guaranteed annuity for the 6 or 7 years?
 
I'm not aware of any company offering them here. My guess is that they'd be a bit of a niche product in an already small market. You're stuck with an ARF, which could invest in a cash fund or on deposit and you'd draw it down to zero over the 6 or 7 years. Depending on when you actually reach 60, you might even get a bit of interest on the deposit or cash fund.
 
The only reason I ask is that I have been toying with the idea of retiring to Spain. It seems an ARF is not a pension product, when it comes to the Irish Revenue and they tax it as an investment product. As such it is a minefield if you decide to retire abroad, with the real possibility of being taxed twice on the same income. An annuity appears to remove this problem and simplifies the taxation issues, for Irish pensioners living abroad.
 
Reactions: mtk
ClubMan said:
An Approved Retirement Fund isn't a pension product?
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Not in the eyes of Revenue. https://www.tmf-group.com/en/news-insights/articles/2018/august/irish-hard-border-pensions/

It was the reaction from Revenue to Portugal trying to entice pensioners to move there by offering them 10 years of no tax on pension income. A reaction that as far I know is unique amongst tax authorities worldwide. They're saying a pension funded under their rules, creates an income stream that is not a pension.

23.16. Distributions (including deemed distributions) from ARFs and AMRFs are generally treated and taxed as emoluments under Schedule E, regardless of the residence status of the individual A distribution from ARFs or AMRFs are not payments of pension, PAYE Exclusion Orders are not issued in respect of such distributions
 
Yes, a person who has a pension income from an annuity in Ireland can apply for a PAYE Exclusion Order if they are no longer tax resident in Ireland. The annuity company will pay the annuity gross and it's up to them to sort out their tax liabilities in whatever country they are resident in. But you cannot do that with ARF income. It will always be taxed under Irish PAYE. Odd.
 
Even in the few countries (4, I believe) that have a DTA with an ARF clause granting sole taxation rights to Ireland, you can still get slightly stung as is the case in Germany, where ARF income is not taxed (as Ireland claims sole taxing rights in the DTA) but the income must be declared as it affects the progression clause (Progressionsvorbehalt) on your taxable income in Germany, this increasing the rate of tax you pay on that income (slightly, but still). I would be surprised if Germany is the only country with a progression clause in its tax code. Still though, I am glad Germany doesn't stake a claim to tax this income in full, like most other countries. I wonder are Irish pensioners generally warned of the potential ARF pitfall with respect to retirement abroad.
 
That tax form is very straight forward.
Revenue are only asking for details from the QFM (ARF providing company) relating to the ARF.
All the details would be provided by the pension providing company. There would be no difficulty involved for the pensioner.
 

According to this article, it may be possible to reclaim the tax on capital gains or interest.
But the underlying capital, which will form the bulk of many ARF's, will be taxed in full.
Only in countries with a " Capital Article" in the Double Taxation arrangment, can the full amount be claimed back. There are only 4 of these. So, most of the tax, in most of the situations, will not be open to rebate.
There is no obligation on any other country to accept any definitions by the Irish revenue and they may well tax the income again.


To put the top hat on it, from the tone of the article it looks as if additional charges will be levied by the QFM for this type of service. As the tax rebate applies to a, potentially, small amount of money, this may not be viable for the pensioner.

I may be misinterpeting this and it would be interesting if anyone , on this site, has experience of the process.
.

Changes to Approved Retirement Funds (ARFs) for non-Irish residents

The Pensions Manual dealing with the taxation of ARFs for non-Irish residents has been updated. This article reviews pension planning considerations for globally mobile employees.
www.pwc.ie
 
The chances of the German tax office stamping and signing a form in English are also zero so you'd need at a minimum to have the form officially translated before they would even contemplate stamping it for you. I suspect the Germans wouldn't be alone in this regard. Imagine rocking up to some Revenue office with a form in German, Swedish, Polish etc. and asking for it to be stamped and signed.
 
That's some nightmare.
You would be better off using the funds in the ARF to buy an Annuity.
 
Is there any guarantee that Revenue won't extend this to annuities?

No one was choosing annuities when they came up with this for ARFs. So annuities were likely not considered at the time.
 
What is the legal basis for not issuing PAYE exclusion orders on ARF income but issuing them for annuity income? Surely Revenue can't just decide this arbitrarily with no regard to the actual law?
 
murphaph1 said:
What is the legal basis for not issuing PAYE exclusion orders on ARF income but issuing them for annuity income? Surely Revenue can't just decide this arbitrarily with no regard to the actual law?
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I think this was a genuine attempt to counteract the Portugese tax free arrangement.
Some people were heading off to Portugal, for a couple of years, and draining their entire ARF, tax free. Then returning to Ireland with all the loot.
So they weren't really retiring to Portugal, they were on an extended, very lucrative, holiday.
However, the law of unintended consequences has turned this into a minefield for people who are, genuinely, looking to retire and to live abroad.

I think the Pensions industry is lobbying for some changes, but Revenue moves very slowly, so I guess this is the deal for the time being.

Which brings me back to my original question of fixed term annuities. In my situation and, perhaps, many others, a lifetime annuity would be poor value, but a fixed term of 5-10 years would be a good alternative. Maybe, Irish Pension companies will introduce these products, assuming there is no legal impediment.

In the UK, the same companies, offer an income of 29k per annum, for 5 years, if you purchase the annuity for 135k.
Seems like a fair deal.
 
If such 5 year fixed term annuities were offered then the same "head to Portugal and drain your pension pot" opportunity would present itself so you would expect Revenue to clamp down on such annuities in the same way, no?
 
murphaph1 said:
If such 5 year fixed term annuities were offered then the same "head to Portugal and drain your pension pot" opportunity would present itself so you would expect Revenue to clamp down on such annuities in the same way, no?
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Not quite the same. Firstly 5 years is a long time, but maybe a min of 10 years would be more appropriate.
Plus an annuity is a different beast. You lose all control over the capital, in exchange for a fixed income. If you die, its all gone. If you need extra, in year 2, tough. If you want to move back to equities because of inflation, tough.
It's not the same and fixed term annuities are commonplace around the world, including most European countries.
 
If your ARF pays you say 30,000 a year - for a single income over 66 the Irish tax on that would be slightly less than the 10% tax Portugal currently charges (Irish tax is about 15%@30000 if you're younger than that) if you're married you'll pay almost 0% tax on an income of 30k @ 66

That'd be roughly the outcome from a substantial 1m pension fund, when you take out your tax free lump then take 4-5% per year.

Revenue have complicated ARFs abroad - where in most cases there isn't that much tax. Even in Portugal if it was a simple choice of Irish tax or Portuguese 10% tax - people might opt for the Irish tax as it's likely to be cheaper than 10%.

Irish tax is currently structured that it's probably the ideal tax to be on if you're a retiree on a modest income.
 
A slightly related question as we have veered into ARFs and residency....Is there likely to be a problem faced by a retiree who is already non-resident at the time their DC pension matures and needs to be converted into an ARF (if that is the path chosen). It seems that Irish Life for example will not even sell an ARF to someone if they are non-resident, even if their pension fund was with Irish Life! Is this a common problem?? I would hate to think that an ARF was not a possibility when the time comes for me to cash my DC pension in. The way things are looking I will probably leave it all fully invested until I turn 66 and then (if I am allowed!) buy an ARF.
 
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