ARF Tax treatment

D

Dundee

Registered User
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I am turning 55 shortly and plan to retire at 63.

I am creating a simple excel plan for the next 8 years of pension accumulation and then 20 yrs retirement drawdown to maintain an income of €60,000 pa gross (though would be great if that was net!). I'd also like to leave a sizable pot approx €500k for each of 2 children when my wife and I pass away.

I'd like to confirm assumptions I am using and how the mix of income/lump sum tax rates should be used?

Policies I currently have are an ARF and Exec Pension Plan. I make significant EPP monthly contributions so that I will have pooled funds of €1.8m by retirement age (this would be my €2M max due to an earlier EPP). I have taken a tax free lump sum of €166k previously. My wife has a £20k UK DB which has been wound up.

Assumptions
  • 5% net fund growth
  • Draw down income from ARFs at the Distribution Imputation rates of 4% from 60 increased if I needed to for the required income level.
  • Wife and I will qualify for the contributory state pension at 68 of 23/40ths - ~€13,600 pa
  • I will have access to the following €4,950 (3300 personal, 1650 paye/self employed) tax credits post retirement from 63 with an additional age credit of €490.
Tax Treatment Query
  • I understand the state pension income will be taxed using the current PAYE income tax rates / USC plus PRSI up to age 67.
  • I am confused how the ARF Imputed distributions are treated ... is it the PAYE income rates / USC / PRSA (to 67) like the state pension or should i be using the following ARF Lump Sum tax rates?
    • 0% tax free
    • 20% €200-500k
    • 40% + USC over €500k
  • If its the income tax (not lump sum rates) rates, is there an approach where I take more 'lump sums' using what appears to be lower rates and use this mix of lump sum supplemented by the ARF/state pension income under the €36,000 pension income tax exemption?
 
OP When you say 5% growth
How are the funds invested?
It's it something you choose yourself ou an adviser?
 
Ah thanks for the feedback. So that means the different lump sum tax regime i noted is only relevant when you close your pre retirement policy (EPP, PPP, PRSA) and take the lump sum before going into the ARF?
 
Correct.

Say you have pension funds worth €1m.

You get a lump sum of €250k; €200k is tax-free and €50k is taxed at 20%.

€686,500 goes into your ARF and €63,500 goes into your AMRF.

Distributions are then subject to PAYE and USC at your marginal rates, together with PRSI, which falls away at age 66.
 
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