What is an ARF?

An Approved Retirement Fund (ARF) is a personal investment account into which an individual can, in certain circumstances, transfer part of their maturing retirement fund instead of using those funds to buy an annuity or take as a taxable lump sum. It is, therefore, an alternative option to using such retirement funds to buy an annuity.

Benefits of ARFs

The potential benefits of ARFs for an individual are:

• Preservation of capital on death. The balance in the ARF on death is part of the deceased’s estate and is therefore preserved for next of kin.

• Tax free investment returns help the ARF to grow.

• Where an ARF holder is married their ARF on death can transfer gross to an ARF held by their surviving spouse, where it can accumulate tax free again until the surviving spouse dies.

• ARF inheritances taken by adult (over age 21) children of a deceased ARF holder are exempt from Inheritance Tax and subject only to a fixed income tax charge of 30% (no USC or PRSI).

• Income withdrawal flexibility, subject to taking enough each year to avoid the notional withdrawal tax penalty. For example, an ARF holder could opt to take 7% of their ARF value this year and 4% next year.

Taxation of Withdrawals

Withdrawals made from an ARF during the holder’s lifetime are subject to PAYE as Schedule E income. The QFM is obliged to deduct higher rate income tax from the withdrawal unless the QFM has received a Revenue payroll notification for that year for that individual.

Investment Returns

ARFs are treated as pension arrangements and so are exempt from Irish taxes on capital gains and investment income. An ARF cannot borrow to invest, as it can only accept into the fund transfers from another ARF or funds transferred on the maturity of a DC pension arrangement under the ARF option.

On Death

While an ARF does not provide a guaranteed income payable for life in retirement (unless invested in an annuity) one of the main attractions of the ARF option is the ability to leave any balance of the fund on death to next of kin. In this way the remaining capital is preserved for next of kin, and not lost on death as it can be with an annuity.

Following the death of an ARF or vested PRSA holder, the fund becomes part of the deceased’s estate and distributed under the terms of their Will or intestacy rules. Such distributions from the ARF are taxed as follows, depending on who inherits the ARF fund from the deceased’s estate.

Making the Right Choice

With so many different options available we all need some help making the correct decision. There's plenty of guidance available at Quigley Financial Brokers with the help of a qualified financial advisor [QFA] to see which option is the most suitable for you at retirement. There's no right or wrong answer as to which option is better - just which one is better for you.

Reach out today

Contact us today and book your consultation https://www.quigley.ie/book-consultation and see how Quigley Financial Brokers can help you choose the best available or contact richard@quigley.ie for further information.