Why use an ARF?

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Pieface

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At retirement, why does it make sense to put the pension fund in ARF and be liable for tax (income tax and usc) on the inputted distribution, rather than move the fund to an investment fund e.g Irish life funds as a example, and get taxed every 8 years on gains?
Thanks.
 
the law states that you transfer it to an ARF or buy an annuity on retirement. There is nothing stopping you drawing it all down and investing it on a personal basis. it would just be tax in efficient to do so.
 
Pieface said:
At retirement, why does it make sense to put the pension fund in ARF and be liable for tax (income tax and usc) on the inputted distribution, rather than move the fund to an investment fund e.g Irish life funds as a example, and get taxed every 8 years on gains?
Thanks.
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That's not how it works. Your choices are:

1. Purchase an annuity. Which is taxed as income.
2. Invest in an ARF. Any withdrawals are taxed as income
3. Take taxed cash. Which is taxed as income

You are fully within your rights to reinvest those withdrawals in the fund (which are all available through the ARF too) and be subject to deemed disposal every 8 years.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Thanks for the replies. @SBarrett, do you recommend to take everything out of the ARF and invest in a fund outside the ARF? What are the pros and cons? The assumption would be that the funds are not required for living expenses but to be saved for the next generation. So the fund would just be left to grow basically. Just trying to get my head around all the various decisions that are made around pension funds. Thanks.
 
Money coming from a DC pension (after taking the 25% lump sum - tax free up to €200,000), can be used as Steven has outlined above. If the 75% is invested into an ARF or an Annuity, the resulting annual income is potentially liable to tax (PAYE + USC). But that depends on the total income number. The resulting income (say 4% of the fund value each year) might be liable to some (or none) PAYE , at 20% or 40%, after allowing for tax credits.
However if you draw down all the 75% as income in one year then you will certainly suffer a significant tax hit. So that makes no sense.
The basic assumption behind building up a pension fund (and getting significant tax reliefs along the way) is that the accumulated fund will be used to provide an income in retirement. If the 75% is invested into an ARF, the fund remaining on death in retirement passes initially to a surviving spouse (and continues as an ARF). On the death of the spouse, any residual fund remaining can pass to children ( but liable to tax).
 
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