An Annuity is a pension for life and an Approved Retirement Fund [ARF] is a post-retirement investment product. ARFs were introduced to Ireland under the Finance Act, 1999.

When taking pension benefits, you take a pension lump sum and use the remainder of your pension fund, usually the largest part of it, to invest in an ARF or to purchase an annuity.

With an annuity you are guaranteed to get an income as long as you live and you’ll never run out of cash. Annuities are suitable for those who are risk-averse and do not wish or cannot afford to take any investment risk. However, income ceases on death and those who die early will have sold their pension fund for very little return.

With an ARF, on death, your remaining funds transfer to your Estate. This suits those with larger pension pots, who are comfortable with and can afford to take an investment risk and who are disciplined in their financial affairs. However, you can live too long; draw out too much money or suffer poor investment performance thus losing all or most of your money and end up dependent on the State in your very old age.

The UK version of the ARF will commence this April. Martin Wheatley, Head of the Financial Conduct Authority, believes once everyone can take out their pension money as and when they like, there will be no way to prevent at least some of the over-55s from making bad decisions with their money.

They will underestimate their longevity. They will overestimate their investment returns. They will be relentlessly overcharged by fund managers. They will be sold [or mis-sold] complicated products that take no account of the fact that they are drawing down and not building up wealth. They will gamble, buy fast cars and take cruises, be offered implausible high returns; unmissable deals in faraway places and dodgy buy-to-let property deals.

The experience in Ireland has been different; therefore as you approach retirement age it is crucial to take independent, professional retirement planning advice.