When taking retirement benefits, most people firstly take the maximum allowable tax free cash. The balance of their fund must then be used to purchase an annuity [a pension for life] or alternatively be invested in an Approved Retirement Fund (ARF).

An ARF is a personal retirement fund where you can keep your money invested after retirement, as a lump sum. You can withdraw from it regularly to give yourself an income, on which you pay income tax, PRSI and Universal Social Charge (USC). Any money left in the fund after your death can be left to your next of kin.

Investing in an ARF is an option if you are self-employed, a proprietary director or if you have a PRSA. Members of a defined contribution employer pension plan also have this option. Under a recent change in procedure, holders of buyout bonds from defined contribution schemes are also eligible to purchase an ARF, irrespective of the rules of their previous pension plan.

If you do not withdraw any money from your fund, Revenue will assume that you have withdrawn 5% each year and income tax and USC will be taken from your fund each January. So you will be charged tax whether you have taken an income or not.

An ARF invests in various assets such as shares, property, bonds and cash so the growth of your ARF fund depends on the performance of the assets it is invested in. ARFs are designed to grow in value but your original investment is not guaranteed. An ARF can run out during your lifetime if:

  • you make large, regular withdrawals from it
  • investment returns are less than expected
  • you live longer than expected

ARFs are subject to yearly management charges, which are taken from the fund and reduce the value of any growth in the fund. An Approved Minimum Retirement Fund (AMRF) is similar to an ARF, except you cannot withdraw any of your original capital until you reach 75. Until then, you can only withdraw any growth in value the fund may deliver.