Options for Defined Contribution Plan

M

Mijne

Registered User
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I was in a Defined Contribution Plan. I am now 60 and have to decide whether to buy an Annuity or AMFR ( I am cannot buy ARF). I am finding it all a bit overwhelming. Annuities are too expensive at the moment and am thinking of buying an AMRF initially and hopefully can buy a pension later.

I just need some advice.

1. Should I try and get 100% allocation rate. Is it best to pay a fee and not commision to the Financial Advisor so I can invest all my money.

2. Is is correct there is a 1% Government levy on the product?

3. There would a be a minimum management fee of 1% per annum?

4. For ongoing advice which I will need, I would need a yearly meeting. Should this cost a minimum of .25% of the product.


My product realistically would have to grow by 5% per annum, as I would also have to pay a minimum of 20% and universal social charge.


Any ideas or suggestions what to ask when I meet with a Financial Adviser.


Many thanks.

Mijne
 
1. Should I try and get 100% allocation rate. Is it best to pay a fee and not commision to the Financial Advisor so I can invest all my money.
There are 22 different A(M)RF charging structures from the main insurers. The lower the allocation, the lower the management fee. The higher the allocation, the higher the management fee. You need to talk to your advisor on which one is best for you.

2. Is is correct there is a 1% Government levy on the product?
No, this does not apply to pensions

3. There would a be a minimum management fee of 1% per annum?
Not correct. 1% is the upper end you would be paying. Again, you have to look at it in conjunction with the allocation rate.

4. For ongoing advice which I will need, I would need a yearly meeting. Should this cost a minimum of .25% of the product.
You can pay by fee or as a percentage of management fee. Again, to be discussed with your advisor.

My product realistically would have to grow by 5% per annum, as I would also have to pay a minimum of 20% and universal social charge.
You need to assess the level of risk that you need to take to earn 5%. What are the potential ups and downs of taking that level of risk. Can you afford to take such a level of risk? If not, what trade-offs do you need to make?

Any ideas or suggestions what to ask when I meet with a Financial Adviser.
What will you do for me?


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Steven

Thanks so much for your detailed answer. You have been very helpful.

Mijne
 
No problem.

I forgot to add, if you are investing in an AMRF, the most you can take out any year is 4% of the fund. When you turn 75, the AMRF becomes an ARF, and you can take out as much as you want at that stage.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Mijne,
Just to be clear, the maximum amount you can invest in an AMRF is €63,500. Any excess funds can go into an ARF.
And you only have to invest in an AMRF is you do not have a guaranteed pension income of over €18,000 p.a.
If your fund (after taking the maximum lump sum) is more than €63,500 then an ARF is something to consider. As SBarrett said the minimum drawdown from an AMRF (or an ARF) is 4% p.a. which is potentially liable to Income Tax (and USC) like any other income.
At any stage you can convert your ARF or AMRF to an Annuity, buy I don't see annuity rates improving much in the near future (assuming interest rates remain low).
You did not state how much your DC fund is worth? But you should ensure that you maximise the tax-free lump sum (which could be 25% of the fund or could be up to 150% of Salary - assuming a minimum of 20 years service).
 
Conan said:
Mijne,
the minimum drawdown from an AMRF (or an ARF) is 4% p.a. which is potentially liable to Income Tax (and USC) like any other income.
Click to expand...

Hi Conan

For an AMRF, 4% is the maximum drawdown. The minimum drawdown is 0%.



Being a bit technical, the minimum drawdown for an ARF is also 0% but the Revenue will still take the income tax due. It is more efficient to take the money out and pay tax on it than to leave it where it is and have the balance amount liable to income tax again. I have never come across a client who hasn't drawn down the imputed distribution amount.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
If you are going down the AMRF option are you taking a reduced Tax free Lump Sum from your DC plan as you are not going down the 1.5 x Salary provided you have 20 years service

Is it an employer sponsored pension plan
 
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