What Happens At Retirement?
Pension Benefit Options
People are living longer today, and many choose to retire before age 65, when they are still active both mentally and physically.
Retirement at any age is a time of change and challenge and research has shown that the challenge cannot be met successfully without thought and advance planning.
Happy and fruitful retirements are based on preparation of mind, attitudes and body - and the sooner preparation begins the better.
Research has shown, also, that those who plan for retirement live longer and are more content than those who do not.
Link to retirement planning council website
If you retire at the Normal Retirement Age (usually aged 65, depending on your plan rules), the pension fund you have been building up over the years may provide one or more of the following benefits;
A tax-free lump sum
The maximum lump-sum possible is 1.5 times salary. This will reduce if you do not have at least 20 years service.
A fixed pension income for life, also known as an annuity.
The amount of pension income you will receive will depend on the amount of pension fund you have built up. The pension income amount will remain fixed for life. The maximum amount possible is two thirds of salary if you have at least 20 years service.
A pension income for your spouse, child or another dependant if you die after retiring.
You can decide to take this option but it will reduce the level of pension you will be able to receive.
Yearly increases on the pensions mentioned above to protect against inflation.
You can decide to avail of this option but it will provide a pension income that will start off at a lower level then if you had chosen a fixed pension income
The level of retirement benefits you receive will of course depend on the size of the retirement fund you have managed to build up. Whilst contributing to the pension scheme, you may keep track of the size of the pension fund through our Pensionplanet facility, our PensionPhone facility and the regular benefit statements you will receive as a member of the plan.
Pension Benefit Options for Additional Voluntary Contributions
Option 1
If, at retirement, you have a guaranteed lifetime income of at least €12,700 per annum from other sources (State Benefit is applicable), you have the following options:
- Invest in an Approved Retirement Fund *ARF; and/or
- Buy a pension income; and /or
- Withdraw cash from the AVC at retirement (less tax)
*An ARF is a personal investment fund that you can leave to your dependants on death as part of your estate. You can withdraw any amount from the fund at any time but you must pay tax on the withdrawals.
Option 2
If, at retirement, you do not have a guaranteed lifetime income for life of at least €12,700 per annum from other sources, you have the following options:
- Buy a pension income
OR - Invest €63,500 (or the value of your AVC fund if less) in an Approved Minimum Retirement Fund *AMRF and
- Use any surplus over €63,500 as in Option 1 above
*An AMRF is a personal investment fund that you can leave to you dependants on death as part of your estate. You cannot withdraw any money from the initial capital investment until you are 75. Before you are 75 you can only withdraw any investment growth made in the fund. Tax must be paid on withdrawals.
What is an ARF
An ARF stands for Approved Retirement Fund. An ARF is a tax free investment fund held in your own name and managed by a Qualifying Fund Manager. Money can be transferred from one ARF to another and you can have more than one ARF. An ARF can only be taken out if you have a guaranteed lifetime income of at least €12,700 per annum. Money drawn down from an ARF is subject to tax.
Please note; Revenue regulations require that from the 31/12/07, 1% per annum of your ARF, inclusive of any income you actually take, will be subject to income tax. This will increase to 3% per annum by 31/12/09.
What is an AMRF
An AMRF stands for an Approved Minimum Retirement Fund (AMRF). It is similar to an ARF except that you can not make a withdrawal from your AMRF capital in any circumstance before age 75. You can draw on the accumulated investment growth at any time as you wish. You can only have one AMRF at any time. An AMRF becomes an ARF at age 75 or earlier death. Money drawn down from an AMRF is subject to tax.
One of the benefits of investing your retirement capital in an ARF or AMRF is that, on death, any balance becomes part of your estate. Tax may apply depending on who inherits your ARF capital. You can use an ARF or AMRF at any time to buy a pension for life. If you do this, the pension payments will be taxable in your hands under PAYE.
Can you retire before Normal Retirement Age
If your employer and trustees agree, you may retire early once you have reached age 50, or at any age if you cannot carry on working because of ill health. However the plan is designed to provide benefits at your Normal Retirement Age. Retiring earlier than this means that your Retirement Fund will be less than if contributions were paid until your Normal Retirement Age.
