Do you always have to draw 4% from a pension fund after taking the 25% tax free lump sum?

J

JamieB_

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We are considering our retirement options at the moment but are unclear on this.

If you are age 55 and have pension pot of €800,000 and you take your 25% tax free lump sum of €200,000.
Do you then have to take 4% from the remaining fund every year from that point, since you "activated" your pension?
Or can you just not take anything else until age 60 and just live off the lump sum before starting to take 4% after age 60?
 
JamieB_ said:
Do you then have to take 4% from the remaining fund every year from that point, since you "activated" your pension?
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I presume that the balance after taking the tax free lump sum is in an ARF or vested PRSA?

For an ARF or vested PRSA you don't have to take 4% p.a. until the year in which you turn 61 and 5% from the year in which you turn 71.
JamieB_ said:
Or can you just not take anything else until age 60 and just live off the lump sum before starting to take 4% after age 60?
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Yes, but you can push it out to the year in which you turn 61 if you choose.

If you have no other or only marginal income you might want to consider taking just enough to use up your tax credits for a tax free income or even some or all of your 20% standard rate band for tax efficiency. E.g. 0% tax or 20% on some of your income instead of 40% later. You will pay some USC and (class S) PRSI if taking €5K+ p.a. but the latter may be useful if you haven't already reached 2,080 PRSI contributions/credits to qualify for the full Old Age Contributory Pension from age 66.

If you have a (non AVC) PRSA then the option to split it into smaller contracts to allow you to retire the smaller pots incrementally on a phased basis is probably available to you. In that way access to your pensions is no longer a one time only/all or nothing event but can be staggered. If this is of relevance and interest to you then you should talk to you pension broker/intermediary/provider about it. There's a little paper pushing required to effect it.
 
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Really this should be aligned with the state pension, some costs may increase with age but the receipt of the state pension is a key date for most. Presume most retiring early would want higher % draw down before that and lower after
 
mmclo said:
Really this should be aligned with the state pension, some costs may increase with age but the receipt of the state pension is a key date for most. Presume most retiring early would want higher % draw down before that and lower after
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You mean something like 4% from 61 to 66, 3% after that (to allow for the OACP), then 5% from 71? Maybe it would suit some people but it sounds like an unwieldy rule for an already complicates pension landscape?
 
mmclo said:
Presume most retiring early would want higher % draw down before that and lower after
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Not necessarily, bearing in mind that they've just received the 25% tax free so some of that could be used to make up any shortfall in income.

I suspect that most would probably opt to leave the new ARF to grow; although Clubman's point about Class S PRSI might also be a consideration.
 
Fortune said:
Nothing stopping them having a higher drawdown in earlier years.
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You would be surprised at the amount of people I talk to who think they are limited to taking 4% of the value of their ARF. I am constantly telling clients that they can take out more and enjoy themselves while they are younger and reduce the amount back down to the minimum in later years.
 
It's more you have to take 5% later when many will have the state pension. We can't regulate all lifestyles I suppose but with a lot of people wanting to retire early the arrival of the state pension might be the time to have less ARF
 
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