How big a pension fund do I need to retire on?

A couple of quick points:-
  • You can put €63,500 into an AMRF - there are no imputted distributions from an AMRF until you hit 75. That's a pretty significant buffer. Also, bear in mind that you still have your tax-free lump sum in reserve;
  • Perhaps more importantly, you don't have to actually spend anything you draw from your ARF! You can just keep it on deposit for as long as you like or use it to buy (tax-free) State savings certificates.
Ultimately, what you do with your pension pot comes down to a question of how much risk (longevity, inflation, etc.) you are are willing and able to bear.

Only you can make that decision but remember:- (a) you own the house you live in outright; and (b) it is highly, highly unlikely that the State pension will ever be cut to a point that you won't be able to provide yourself with the basics (food, heat, etc.).
 
Again great information, Sarenco. Thank you. I know I run the risk of driving you crazy with all my questions which is not at all my intention but is it ok to keep money in an AMRF like you suggest when my money from the state is greater than the €12700?
The idea about taking 4% out but only spending 3% makes so much sense. It seems like the perfect way around the governments rules. I can set up a separate account with the additional 1%. I know I am cautious when it comes to risk but I understand that being too cautious has its own risks. But if I follow what you suggest I can get a good bit better return than an annuity and by having a separate savings account with the additional 1%, I'd have a much lower chance of not running out of money. Does this make sense to you? Again thanks so much.
 
Bob2018 said:
... is it ok to keep money in an AMRF like you suggest when my money from the state is greater than the €12700?
Click to expand...
Yup, no problem there (at least until you hit 75).

There's really not a world of difference between 3% of €285k and 4% of €221.5k (€285k - €63.5k).

Bear in mind that you can always decide to annuitise all or a portion of your retirement savings at a later stage. The older you get, frankly, the cheaper the annuity!

It's always a trade off between risk and return. No way around it I'm afraid.
 
Hi Bob2018,

Thanks for providing the further information; you’ve received good advice from Sarenco and others.

My sense is that you would not be obliged to set up an AMRF (i.e. the €63,500 ancillary fund) because your State pension income would exceed €12,700. I helped an uncle of mine a while back who wanted to access his AMRF and the Qualifying Fund Manager (i.e. the ARF/AMRF administrator) included the increased pension for a spouse in the guaranteed specified income calculation.

In terms of your overall position, you’re in decent nick. One further question though, what type of pension is it? Personal Pension, PRSA, or occupational pension scheme set up by an employer?

Your fund is worth €380k, so you get €95k tax-free, with €285k into your ARF. You’re then forced to take out 4% a year, rising to 5% at age 71. 4% is €11,400, which is more than you need, and the whole €31,400 is tax-free due to the age exemption. Your plan to save some of it is rock solid in my view. Sarenco’s more of an investment person, but I’d be looking at a medium risk option in the Zurich Prisma/Pathway, Standard Life MyFolio or Irish Life MAPS suites of funds with as cheap an annual charge as I can get. I’d use some of my tax-free lump sum to keep five years’ worth of supplementary income in cash (say €50k), I’d blow around €25k of it on a nice holiday plus a few home improvements etc, and then I’d put the other €20k plus my future savings in a similar investment strategy.

Best of luck,

Gordon
 
Thanks again everybody. I have been looking at this again and had a good chat with the boss about all this last night so what I might do is to summarise my plan later and my reasons so that at least we will be going into this with our eyes wide open. Before I summarise everything, I read somewhere that when your guaranteed income exceeds €12,700 the ARF automatically converts into an ARF. Is this true or not? I'm confused about this because Sarenco seems to be saying the opposite if I understand correctly.
Also, just to take an extreme example, say I had €300,000 in an ARF and I did not draw out anything one year, I would be taxed on €12,000 because of the "imputed distribution". Where does this tax go? Is it paid automatically from the insurance company to the revenue? What I'm really trying to figure out is can I reclaim this tax given that our total level of income is below the "tax free" amount or is it effectively a tax for not drawing enough out (and this money is just lost)?
 
Last edited:
Bob,

http://www.aviva.ie/media-library/ARF_AMRF_Withdrawing_Information.pdf

Imputed Distributions on an ARF
You do not have to make withdrawals from your ARF; however, we must deduct a minimum amount of tax from your ARF each year as if you had taken a minimum withdrawal. This is commonly referred to as an “imputed distribution”. The minimum income tax we must deduct is the amount you would have paid had you withdrawn a percentage of the total fund value from your ARFs and vested PRSAs on 30 November. Vested PRSAs are PRSAs from which retirement benefits have commenced to be taken, usually in the form of a tax-free retirement lump sum of up to 25% of the value of the PRSA (with the remaining balance staying invested in the PRSA).
 
Last edited:
Bob,
If you have to invest in an AMRF at retirement because at that stage you do not have a guaranteed pension income of €12,700, the AMRF converts to an ARF on the earlier of reaching age 75 or your guaranteed pension income exceeding €12,700.
If you had an ARF of €300,000 you are required at a minimum to pay the tax based on an assumed drawdown of 4% (€12,000). If you actually draw down the €12,000 gross, the ARF provider must deduct marginal tax at source and pay you the net. It is always better to draw down the 4% gross than just pay the tax, as otherwise you are simply only reducing the ARF fund by the tax and thus requiring a higher drawdown next time and thus paying more tax.
Any tax deducted at source is paid to Revenue. If however your total taxable income is such that you are not liable to tax (or only liable at the lower 20% rate) then you can make a tax return at the end of the tax year and claim a tax refund.
The 4% minimum drawdown requirement was introduced to force ARF holders to prevent people from never (or rarely) drawing down income and thus paying no tax on a product that is an alternative to an Annuity where there would potentially be a tax liability.
 
You must log in or register to reply here.
Back
Top