Is an AMRF a disadvantage when retiring?

[Club Scrub]

My pal is 62 years old and self employed. He has some personal pension policies which he no longer contributes to with combines values of approx €90,000.

He needs to invest money in his business short term and has been refused by his bank. He is now planning to draw down the tax free cash element of his personal pensions to invest in the business and has been told that the balance must be placed in an AMRF.

He doesn't intend to retire until 70 anyway (unless he becomes ill). I would be concerned at his course of action as from reading up he can't draw down any income from the AMRF until 75?

I would like to hear peoples opinions of his plan & how an AMRF might effect his income? I think he is mad but perhaps I am wrong?

 

[LDFerguson]

He could transfer his Personal Pension policies into a PRSA, withdraw 25% of the fund as a tax-free lump sum now and leave the remainder in the PRSA, which he can later convert to an annuity or an ARF at any age between now and 75.

You're correct in saying that any money transferred to an AMRF cannot be accessed before age 75. Once the current Finance Bill is passed (on Saturday night?), if he subsequently has guaranteed lifetime income of 1.5 times' the basic State Pension (around €18,000 per year at present) he would be able to convert his AMRF into an ARF and access it that way.

At any stage, he can buy an annuity with his AMRF fund.

I'd have questions about the wisdom of taking 25% (and the only tax-free element) of his pension fund to invest into a business, but I don't know the man.

Liam D. Ferguson

 

[Club Scrub]

Hi Liam

Many thanks for your input- hope you don't mind the following questions which I am trying to understand:

What is the advantage of transferring to a PRSA? Is it that he could leave it in PRSA rather than being "stuck" with an AMRF now? What costs are typically associated with the transfer?

Here is where I am really in a muddle-

what qualifies as guaranteed income? This appears vital to avoid AMRF in favour of ARF?

Finally- if someone uses their AMRF to purchase an annuity (which is the only way of getting an income from the AMRF?) then this annuity is retained by the insurance company/provider on death rather than being inherited by his family?

Apologies for all the questions but this stuff (while interesting) is beyond me!

 

[LDFerguson]

What is the advantage of transferring to a PRSA? Is it that he could leave it in PRSA rather than being "stuck" with an AMRF now? What costs are typically associated with the transfer?

The big advantage up to recently was that you could take your tax-free lump sum from a PRSA without having to transfer the balance to an annuity, ARF or AMRF. If you transferred to an AMRF, the money was locked up to age 75, whereas if you left it in a PRSA you could transfer it into an annuity or (with certain restrictions) an ARF or even taxable cash at any age between 60 and 75.

But thinking about your friend's situation in light of the current Finance Bill, there's probably no great advantage to transferring to a PRSA as it will be possible to unlock the AMRF as a result of the Bill.

In practice Guaranteed Lifetime Income means either guaranteed pensions from other arrangements or the State Pension. Other forms of income do not qualify as they're not guaranteed, e.g. income from ARFs, rental income, investment income, earnings etc.

Finally- if someone uses their AMRF to purchase an annuity (which is the only way of getting an income from the AMRF?) then this annuity is retained by the insurance company/provider on death rather than being inherited by his family?

Yes. An annuity dies with the annuitant. It is possible to set the annuity up from the outset to be payable for a guaranteed minimum period regardless of whether he lives or dies, e.g. 5 years or 10 years. It is also possible to arrange for the annuity to continue for the lifetime of the spouse if the main man dies first (and has a spouse!). Both of these options come at a cost of a lower annuity though.