DOOLEY INSURANCE GROUP BEHIND OVERALL BUSINESS OF THE YEAR AWARDOctober 25, 2016
Welltel and Dooley Insurance TestimonialNovember 4, 2016
What are my options?
On retirement, you can take a cash lump sum and with the balance, subject to Revenue rules you can:
¬buy a guaranteed taxable pension income for the rest of your life (an annuity)
¬invest in an approved minimum retirement fund (AMRF)
¬invest in an approved retirement fund (ARF)
¬ take the entire pension fund as taxable cash
¬choose a combination of these options
You can invest in an ARF or AMRF or buy an annuity from any provider.
Cash lump sum
In general you are entitled to up to 25% of your pension fund as a lump sum. If you are an employee and a member of an occupational scheme your lump sum may be calculated differently.
There’s a lifetime limit to the amount of tax free cash lump sum you can take from all of your pensions (from 7 December 2005).The first €200,000 will be tax free, the next €300,000 will be taxed at 20% and anything more than €500,000 will be treated as income and taxed under the PAYE system.
What’s an annuity?
An annuity converts the money in your pension fund into a guaranteed income for the rest of your life. You can choose to have your annuity income stay the same or automatically increase each year.
You can also choose for your spouse/civil partner to carry on being paid some or all of the income after you die. The choices you make will affect the income you get, for example, the more you want your spouse/civil partner to be paid after your death, the lower your income will be.
Approved retirement funds
What’s an approved (minimum) retirement fund?
An approved minimum retirement fund (AMRF) allows you to invest up to €63,500. You can only withdraw a single payment each year, of up to 4% of your AMRF.
What’s an approved retirement fund?
An approved retirement fund (ARF) allows you to leave your pension fund invested and adjust income to suit your needs. You must withdraw a certain percentage each year from your ARF:
¬ 4%, if you’re 60 years of age or over for the full tax year,
¬ 5%, if you’re 70 years of age or over for the full tax year,
¬ 6%, if you’ve a combined ARF and vested PRSA
assets of €2million or more, and aged 60 or over for the full tax year.
Any withdrawals from an AMRF or ARF are treated as income and are taxed under the PAYE system.
With an AMRF and ARF, you can leave the funds to your dependents subject to tax.
Annuity – things to think about
It gives you a guaranteed income for life.
There is a wide choice of benefit options available in the market, to suit your own circumstances¬(Guaranteed period, payment escalating, spouses pension)
Simple and easy to understand
¬Once you purchase an annuity you can’t cash it in
¬The income stops when you (and your partner with a joint life annuity) die so there is no funds to leave to your dependents
¬You are locked into an annuity rate and can’t benefit from any investment growth
¬You choose how your annuity income is paid at the start so there’s no flexibility
Approved retirement funds – things to think about
¬You can leave your remaining fund to dependents, subject to tax
¬Income flexibility – income is not guaranteed but you have more flexibility over when you take your money from your pension fund. You can increase and decrease the amount*you take to suit your changing circumstances. For example, you can increase your income during times of ill health to cover medical expenses.
¬ Any investment growth in your ARF grows tax free until you make a withdrawal
¬You have more control and choice with an ARF with access to a wide range of investment options
*Regular withdrawals on an ARF are usually subject to a maximum amount, for example 5% of the value each year.
¬The money in your ARF could run out while you’re still alive leaving you with no regular income. The regular withdrawal can also fall in value
¬ARFs can be complicated and so need ongoing review and attention
¬ Each year, you must withdraw a certain percentage from your ARF:
¬ 4%, if you’re 60 years of age or over for the full tax year, or
¬5%, if you’re 70 years of age or over for the full tax year, or
¬6%, if you’ve combined ARF and vested PRSA assets of €2million or more, and aged 60 or over for the full tax year.
After accessing up to 25% of your pension fund as a cash lump sum you can either invest the balance in an approved (minimum) retirement fund or an annuity.
It is worth pointing out that it is possible to get the best of both worlds. You can use part of your pension fund to invest in an ARF and part of your pension fund to purchase an annuity. This gives you the potential to grow some of your money in an ARF while having the flexibility to take withdrawals.
You’ll also have the comfort of a guaranteed income from your annuity.
Who should I talk to about my retirement plans?
Your financial broker will be able to assess your personal situation and guide you through the complexities of retirement and tax planning.
Planning your retirement is a very important part of providing for your future and should be looked at in the context of your overall financial plans and goals.
This guide only gives general information on retirement options. It will not explain product specific charges or options. For specific information on your product choices and your options at retirement, please make an appointment with us today to sit down and discuss all your options.
Laws and tax rules may change in the future.
The information here is based on our understanding of the situation in October 2016.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: The value of your investment may go down as well as up.
Warning: The income you get from this investment may go down as well as up.