cashing out

Discussion in 'Pensions' started by cows10002003, Nov 14, 2017 at 6:42 PM.

  1. cows10002003

    cows10002003 New Member

    after 20 years of contributions, I have E100000 in a pension fund. in the next 7 years I will contribute up to 30% of my income annually which will give me a pot of about 200000 euro when I much of a annual pension would this buy me ( including the 25% tax free).
  2. Conan

    Conan Frequent Poster

    With a fund of €200,000 your options are:
    - take 25% as a tax free lump sum
    - with the remaining €150,000 you can either:
    - buy an Annuity (guaranteed income for life), or
    - invest the €150,000 into an Approved Retirement Fund

    If you go the Annuity route you give the money to an Insurance Co. and you might get an annual pension of circa €6,400 pa (assuming age 65 and based on current rates). This income is payable as long as you live.
    If you go the ARF route, you invest the €150,000 into (perhaps) one or more funds. And then you can draw down an income as you choose, subject to drawing down a minimum of 4% pa. Obviously any such income may be liable to tax.

    The advantage of the Annuity is that you have a guaranteed income for life. The disadvantage is that you give away the €150,000.
    The advantage of the ARF is that you retain control/ownership of the €150,000 and on your death your spouse (if any) can take over the ARF or if no spouse any capital remaining can form part of your estate. The disadvantage of the ARF is that you have to invest the cash and that involves investment risk. If your fund does not perform as well as your drawdown rate (say 4%pa) then the fund will gradually diminish over time and so potentially will your income.

    It can be a difficult decision. If your health is poor on retirement then an ARF is probably the way to go. But if you want security of income over the long term and your family history is one of longevity, then perhaps an Annuity might be better.

    Also remember, that the average life expectancy for a male retiring at 65 is now circa 20years (and about 24 for females).

    Perhaps seek professional advice.
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  3. cows10002003

    cows10002003 New Member

    thanks conan.
  4. moneymakeover

    moneymakeover Frequent Poster

  5. MrEarl

    MrEarl Frequent Poster


    That calculation looks a bit high, I'd suggest the annual pension from an annuity would be around €5.9k - €6k pa, based on current rates and a lump sum of €150k.
  6. SBarrett

    SBarrett Frequent Poster

    OP doesn't say how old he is which has a big effect on the annuity rate. Conan ran his quote based on age 65. As he works in the industry, he has access to quote systems, so there's no reason to say it's not accurate.

    Either way, annuity rates are very poor value at present. I can't remember the last time I set up an annuity for someone.

    If you go the ARF route, you always have the option of it buying an annuity at a later date. I've never had a client do this though.

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  7. Epackingsupply

    Epackingsupply New Member

    very hard to calculateo_O
  8. cows10002003

    cows10002003 New Member

    57 now.
    MrEarl likes this.
  9. MrEarl

    MrEarl Frequent Poster

    I don't work in the industry but for info., I used the online calculator provided by Irish Life and also assumed age 65 :)

    Not looking to split hairs here obviously and I accept that the Irish Life online calculator may be weighted to allow for fluctuations in rates and a "worst case scenario", or to cover payment of commissions etc.

    Bottom line is that we all probably agree that annuity rates are extremely poor these days and there are few reasons to think that they'll increase in the next few years given the low interest rate (and more directly relevant, bond yield) environment.
    SBarrett likes this.