Stick Or Twist? What Next For Approved Minimum Retirement Funds

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At retirement, some individuals will have the option to retire under the ‘new rules’. These give people the option to take up to 25% of their pension fund as a tax efficient lump sum, with the balance invested in post-retirement savings plans known as Approved Retirement Funds (ARF) and Approved Minimum Retirement Funds (AMRF).

One of the rules with ARFs is that the first €63,500 must be invested in an AMRF. An AMRF is similar to an ARF but with severe drawdown restrictions until age 75 i.e a maximum of 4% of the value can be withdrawn from the fund on a yearly basis.

The original amount that could be invested of IRL£50,000 was changed to €63,500 when we adopted the Euro. The 2012 Finance Bill increased the AMRF figure from €63,500 to €119,800. This was cut back to €63,500 in 2013, but only for a three year period.

The AMRF amount is due to change back to the larger figure of €119,800 in 2016 but a legislative change is required to do so. To date, there has been no indication of this change in the Budget or the Finance Bill.

So, what now for the AMRF?

  1. Stick?

Based on the lack of talk about reintroducing the larger figure it would appear that there will be no change for the forthcoming year. Add to this, the fact that most ARF pension savers have been quite prudent when it comes to drawdowns, the Government may not feel it is necessary to increase the requirement.

  1. Twist?

Due to inflation and the increase in pension values since 2012, the €63,500 AMRF is far less of a burden than it was when it was introduced. The increased figure of €119,800 would mean that far more people would fall into the situation of only having an AMRF. While this may reduce their potential lump sum income at retirement, it would guarantee a slightly higher annual income until the age of 75.

  1. Withdraw?

The UK introduced a very progressive ‘pension freedom’ system in April 2015 which allows pension savers the option of withdrawing all of their funds as a taxable lump sum upon retirement. While this would certainly give people more options, it could also lead to them becoming more reliant on the state in their golden years.

If the Irish Government chooses to stick or twist, this will undoubtedly see an increase in people transferring small and large Irish pensions to the UK to avail of the pension freedoms there.

Get in touch with us if you would like to find out more about whether you can benefit from a pension transfer to the UK or elsewhere.