What options have I got for my Pension Fund?

The Finance Bill 2021 was signed into law on 21 December 2021. It included several significant pension changes based on the recommendations detailed in the report produced by the Pensions Reform Group.

Changes to Approved Minimum Retirement Funds (AMRFs)

• The AMRF requirement no longer applies at Retirement to individuals wishing to avail of the Approved Retirement Fund (ARF) option from Occupational Pension Schemes, Personal Retirement Bonds, Personal Pensions and Personal Retirement Savings Accounts (PRSA’s)
• On 1 January 2022 all existing AMRFs became ARFs – and the legislative rules applying to ARFs now apply to these former AMRFs
• The above changes to AMRFs also apply to Vested-PRSA AMRFs (a Vested-PRSA is a PRSA where the Retirement Lump Sum has been paid out and the residual fund remains in the PRSA rather than transferred to an AMRF). A Vested-PRSA AMRF related to the requirement to ring-fence up to €63,500 in the Vested-PRSA.

Impact of the AMRF Changes

• Things have moved on a lot since the introduction of the AMRF in 1999 – and the associated restrictions were regarded by many as no longer fit for purpose.
• The changes will impact many clients who held AMRF policies – for example those who, until now, did not satisfy the guaranteed income requirement (€12,700) or those who due to their age (under 66) meant that they were not yet in receipt of state pensions.
• It will also impact, in some cases, those who had reached state pension age but did not receive the maximum rate of state pension and meet the threshold of €12,700 – for example, due to gaps in their Pay Related Social Insurance (PRSI) record
• Existing AMRF‘s

• As a result of the changes in the Finance Act, all existing AMRF policies will now be reclassified as ARF policies and administered as ARFs.

As the former AMRFs are now regarded as ARFs, this will give you the same flexibility associated with ARFs, for example:

• Regular withdrawals of between 4% – 10% per annum
• Partial encasements of greater amounts
• Full encashment  

This is the case regardless of the age of the policy owner. Prior to 1 January 2022, the maximum withdrawal that was allowed from an AMRF was 4% per annum. Many clients may therefore be tempted to take large withdrawals or fully encash those former AMRF policies. This may be necessary in circumstances of financial hardship or ill-health, but clients should be aware that large withdrawals or full Encashments may incur early surrender penalties and are likely to be taxed at their marginal rate of Income tax, Universal Social Charge (USC) & PRSI (where applicable).

In any given year where a full encashment is made, this could result in a higher taxation on those funds when compared with taxation applicable where the funds are withdrawn on a gradual basis over a number of years

Regular Withdrawals and Imputed Distribution Regime

 As the former AMRFs are now ARFs, this also means that from 2022 onwards they are now subject to the Imputed Distribution regime (previously the Imputed Distribution regime did not apply to AMRFs and Vested-PRSA AMRFs.) For any ARF owners who are 60 years of age or over for the whole of 2022 (i.e. who have their 61st birthday in 2022, or who are already over age 61), this means that an Imputed Distribution will now apply to those former AMRF funds as they are now regarded as ARFs.

Note on Imputed Distribution Rates

Where the ARF owner is 60 years of age or over for the whole of that year and where the relevant value is:

Not greater than €2m

• Rate = 4% or
• Rate = 5% where the individual is aged 70 years or over for the whole of the relevant tax year.

Greater than €2m, the Rate = 6%

Retirement Options

The requirement to purchase an AMRF for those without a guaranteed income of €12,700 has now been removed. Therefore, anybody choosing the “ARF Option” for their residual fund can now direct all of the residual fund (after Tax Free Lump Sum is paid) to an ARF – or to a number of separate ARF policies – or to a combination of ARF and/or Annuity.

You may also take the residual fund as a once-off taxable cash payment. It is important to note, that the once-off taxable cash payment under this route is taxable at your marginal rate of Income Tax, USC & PRSI (if applicable) and therefore may result in higher taxation if income is drawn down in one year rather than over a number of years via a regular withdrawal from an ARF

The changes from AMRF to ARF bring with it a number of new options and possibilities. If you need more information please contact Frank Ryan Financial Services

Frank Ryan Financial Services is regulated by the Central Bank