ARF Distribution and PAYE Process.

D

Deauville

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Hi, would anyone have any experience of the process of taxing ARF distributions ?

I'm retiring this May (DC Occupational Scheme) and I'll be 66 in September.
If I was to initiate an ARF in December 2024 (after the November 30th. fund valuation for deemed distribution and thus avoiding a deemed distribution in 2024)
and requested the provider to distribute the ARF monthly starting in the new year (say Jan.2025),

would the provider (Zurich most likely) estimate the fund value at start of year, 4% and pay out monthly distribution and apply PAYE / USC each month in 2025 ?
Is that how it would work ?
Or do I request a nominal amount based on 4% value of fund in December 2024 and paid monthly in 2025 ?

On another possible option.
If the Market/fund value was down in December 2024 and I could afford to do so,
Could I set up the ARF but delay distribution until a single payment in December 2025 (based on fund value in November 2025).

By the way, I'm aware it would also delay TFLS. until I take my benefits from the DC scheme.

With full deemed distribution in 2024 I would be paying 40% PAYE on a chunk of it.

Thanks in advance for any information.
 
You can choose a 4 % withdrawal paid monthly. Each month, they will take one twelfth of 4% if the fund value on that day, and apply PAYE etc.

You could also just choose a monthly amount.
 
@Deauville

In November each year I give Zurich a drawdown percentage for the following year. They calculate the drawdown amount for the year in January and I get one twelfth of that each month, less tax etc.

If you are worried about crystallising a loss by drawing down when the funds are doing badly, you could, when determining your fund choices, specify that an amount equal to say two or three years drawdown was to be invested in their cash fund, and that all drawdowns were to be taken from this. Then top this up from the other funds from time to time when they are doing well.
 
Freelance said:
@Deauville

In November each year I give Zurich a drawdown percentage for the following year. They calculate the drawdown amount for the year in January and I get one twelfth of that each month, less tax etc.

If you are worried about crystallising a loss by drawing down when the funds are doing badly, you could, when determining your fund choices, specify that an amount equal to say two or three years drawdown was to be invested in their cash fund, and that all drawdowns were to be taken from this. Then top this up from the other funds from time to time when they are doing well.
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Thanks for that information.

So far there seems to be an option to

  • take monthly 1/12th of a percentage of fund portfolio value calculated at start of year. Any shortfall of deemed distribution addressed at end of year.
  • a monthly 1/12th. of a percentage of fund portfolio value calculated on a monthly basis (this would give more of an average over the year). Any shortfall of deemed distribution addressed at end of year.
  • a single annual distribution at end of year based on fund portfolio on 30th. Nov. value.

Zurich don't facilitate a 'bucket strategy' (choosing which fund to drawdown from) Edit: I was wrong on this.

nor do they facilitate automatic re-balancing of funds within a portfolio. Some providers do but I prefer the the range of Zurich funds with regard to charges and performance.

Execution only brokers seem to use Zurich which is another plus for them.

Getting additional product or process information directly from the providers in general is like trying to get blood from a stone.

Again, many thanks to you, Fortune and Freelance for sharing your experience.
 
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Hi All

Can I please ask a question about a 'bucket strategy' / drawing from cash account in portfolio in order to mitigate sequence of return risk.

@Freelance - Does Zurich facilitate this or similar?

I would like to have as much control over draw down and re-balancing my portfolio when the time comes.

Does anyone have any recommendations on providers and whether costs to set up such a facility are prohibitive?

Thanks in advance.

LT
 
My wife will be buying an ARF in about 12 months time so I’m watching this thread with interest.
 
Apart from the 4% after age 61 and 5% after age 71, there is total flexibility on when and how much is drawn down from an ARF.

I will be attacked by the forum financial police force for the following, but here goes.

If you reckon that the unit fund prices in your ARF have taken a severe reduction and that this reduction is likely to be recouped you can suspend drawdowns until the expected recovery.

I did this during COVID. The unit funds were reduced by 50% at the begining, when there was widespread panic about the end of humanity as we know it.

On the basis that either we will all be dead in 6 months, or the panic will end and the markets will recover, I suspended drawdowns. Within 6 months all unit price losses had been recovered. I then restarted my drawdowns. There were no charges for doing this. Just a written notice of suspension and restarting to Zurich was all that was necessary.
 
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S class said:
Apart from the 4% after age 61 and 5% after age 71, there is total flexibility on when and how much is drawn down from an ARF.

I will be attacked by the forum financial police force for the following, but here goes.

If you reckon that the unit fund prices in your ARF have taken a severe reduction and that this reduction is likely to be recouped you can suspend drawdowns until the expected recovery.

I did this during COVID. The unit funds were reduced by 50% at the begining, when there was widespread panic about the end of humanity as we know it.

On the basis that either we will all be dead in 6 months, or the panic will end and the markets will recover, I suspended drawdowns. Within 6 months all unit price losses had been recovered. I then restarted my drawdowns. There were no charges for doing this. Just a written notice of suspension and restarting to Zurich was all that was necessary.
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Interesting option that I was unaware of. Thanks for sharing. Also good to know to be aware of the FFPF! :)

Zurich Pensions seems to be getting a few upvotes across several threads recently.
 
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I have a Zurich ARF.
I am taking 4% annual distribution, even though I don't need the extra income. I notice the monthly amount increased in 2024, probably due to the funds performance.
It's a handy way of keeping up your PRSI contributions.
 
Kev1964 said:
Interesting option that I was unaware of. Thanks for sharing. Also good to know to be aware of the FFPF! :)

Zurich Pensions seems to be getting a few upvotes across several threads recently.
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These are all basic things that any ARF will be able to do
 
Fortune said:
These are all basic things that any ARF will be able to do
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Feel free to post the AMC of any ARF to give us all a bit of transparency in this smoke and mirrors cartel like closed market. The AMC should include the Broker/Financial advisor trail commission which is hidden in most cases and not transparent. Can I suggest that some knowledgable member creates a "ARF Best Buys" Key post ??
 
Flybytheseat said:
Feel free to post the AMC of any ARF to give us all a bit of transparency in this smoke and mirrors cartel like closed market. The AMC should include the Broker/Financial advisor trail commission which is hidden in most cases and not transparent. Can I suggest that some knowledgable member creates a "ARF Best Buys" Key post ??
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It wouldn't be too easy. The AMC would vary depending on the fund choice, charging structure, broker remuneration, early enchantment penalties and god knows what else. Leaving aside the broker remuneration (they can take anything between zero and maximum), there'd be thousands of permutations.
 
Flybytheseat said:
The AMC should include the Broker/Financial advisor trail commission which is hidden in most cases and not transparent.
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Trail commission, if selected, must be disclosed by the broker at or before point of sale. You get a Statement of Reasonable Projection which shows you the projected value of your ARF and it always includes a table of intermediary remuneration. If a broker is to receive trail commission, it's there. It cannot be hidden.

Flybytheseat said:
Can I suggest that some knowledgable member creates a "ARF Best Buys" Key post ??
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As @Fortune says, this would be impractical do do. There are six "High Street" ARF providers, not counting the smaller self-administered ARF providers. Each provider has a wide range of charging options depending typically on the size of the ARF, whether or not early exit charges apply, the commission (initial or trail, if any) being paid to the intermediary, what fund(s) are chosen etc.. The broker gets to decide which of the available options suits their business model. Some brokers provide more services than others. Some brokers charge more than others. The numbers of possible combinations and permutations are huge.
 
LDFerguson said:
As @Fortune says, this would be impractical do do. There are six "High Street" ARF providers, not counting the smaller self-administered ARF providers. Each provider has a wide range of charging options depending typically on the size of the ARF, whether or not early exit charges apply, the commission (initial or trail, if any) being paid to the intermediary, what fund(s) are chosen etc.. The broker gets to decide which of the available options suits their business model. Some brokers provide more services than others. Some brokers charge more than others. The numbers of possible combinations and permutations are huge.
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Agree it would be difficult Liam, but if we were to limit the Key Post to Passively Managed Global World Equity funds for 70-75%% of the fund and the balance in cash on an execution only basis (including Broker fees/commission) then at least everyone would have an idea of what is the "Best Buy" and could compare that against what they are offered to see if they see the value in paying a premium / trail for ongoing advise. Take €500K as the gross fund value.
 
With respect, when we start discussing ARF's it usually ends up in focusing on charges.
Maybe a key post on charges would free up space to discuss other aspects regarding ARF's
Already I've picked up some gems from replies above and I'm sure there are many more gems of wisdom and knowledge out there.
When we go down the road of charges, all else gets ignored.
What think you guys ?
 
Deauville said:
With respect, when we start discussing ARF's it usually ends up in focusing on charges.
Maybe a key post on charges would free up space to discuss other aspects regarding ARF's
Already I've picked up some gems from replies above and I'm sure there are many more gems of wisdom and knowledge out there.
When we go down the road of charges, all else gets ignored.
What think you guys ?
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Agree but charges are also important given that the difference can make up 1% PA which makes a 4% draw down 25% more expensive for the uneducated pensioner. Sure early encashment, the ability to "bucket" cash fund withdrawals etc., withdrawal breaks are also interesting topics well worth the discussion.
 
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Flybytheseat said:
Agree it would be difficult Liam, but if we were to limit the Key Post to Passively Managed Global World Equity funds for 70-75%% of the fund and the balance in cash on an execution only basis (including Broker fees/commission) then at least everyone would have an idea of what is the "Best Buy" and could compare that against what they are offered to see if they see the value in paying a premium / trail for ongoing advise. Take €500K as the gross fund value.
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I started looking at the websites for global passive equity funds and the first two I looked at, Aviva and Royal London, both claim their AMC on ARF funds is 0%.

Zurich don't say what their AMC is.
Irish Life don't say what their AMC is and, as noted elsewhere on this site, they don't tell you what benchmark their passive fund is attempting to track.
Standard Life is 0.9%
The only passive funds I can find from New Ireland are lifestyled and don't give an AMC.

Weirdly, it looks like most of the companies have outsourced their fund websites to the same company who make them all look the same, and don't show the AMC.
 
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Fortune said:
I started looking at the websites and the first two I looked at, Aviva and Royal London, both claim their AMC on ARF funds is 0%. I give up.
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Maybe I'll ask Chat GPT to do a Key Post on the topic as I agree it's beyond most mortals as the industry does everything to hide charges in terminology and smoke and mirrors. I'll post the results here.
 
Flybytheseat said:
Maybe I'll ask Chat GPT to do a Key Post on the topic as I agree it's beyond most mortals as the industry does everything to hide charges in terminology and smoke and mirrors. I'll post the results here.
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Didnt really help. Here's what ChatGPT says:

"To determine the cheapest Irish ARF (Approved Retirement Fund) for a €500,000 investment, including broker commission and trail commission, we need to consider several factors such as management fees, broker commissions, and trail commissions. It's important to note that the specific fees and commissions can vary between providers, so it's essential to do thorough research and comparison shopping.
Here's a general breakdown of the costs you might encounter:
  1. Management Fees: These are the fees charged by the fund manager for managing the investments. For a passive global equity fund, management fees could typically range from 0.1% to 0.5% or more annually, depending on the specific fund.
  2. Broker Commission: This is the fee charged by the broker for executing trades and managing your account. Broker commissions can vary widely, so you would need to check with different brokers to find the best rates. Some brokers may charge a flat fee per trade, while others may charge a percentage of the total investment.
  3. Trail Commission: Trail commission is a fee paid to financial advisors or intermediaries for ongoing advice and service. This fee is typically a percentage of the assets under management and can range from 0.5% to 1% or more annually.
  4. Cash Management Fees: If you're investing a portion of the ARF in cash, there may be fees associated with the cash management or deposit account.
To calculate the total cost, you would need to add up the management fees, broker commissions, trail commissions, and any other applicable fees.
For example, let's assume the following:
  • Management Fee: 0.3% annually
  • Broker Commission: €10 per trade (assuming you're making periodic investments)
  • Trail Commission: 1% annually
  • No specific cash management fees mentioned
Based on these assumptions, you can calculate the total annual cost as follows:
Management Fee: 0.3% of €500,000 = €1,500Broker Commission: Assuming quarterly trades, 4 trades per year * €10 = €40Trail Commission: 1% of €500,000 = €5,000
Total Annual Cost = Management Fee + Broker Commission + Trail Commission = €1,500 + €40 + €5,000 = €6,540
This calculation provides a rough estimate of the annual cost for maintaining the ARF. However, it's essential to verify the actual fees with the specific providers you are considering, as they may vary significantly. Additionally, consider other factors such as investment performance, customer service, and the reputation of the provider when making your decision."


€6540 per annum in fees for a 4% withdrawal PA from a €500K fund (i.e €20K PA withdrawal) is extortionate.
 
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