An Approved Minimum Retirement Fund (AMRF) and/or Approved Retirement Fund (ARF)
A Guaranteed Income for Life, or annuity, may be the right option for someone who needs their pension to provide them with a steady income in retirement. However, if your circumstances are such that you do not require a regular income for life in retirement, you could consider purchasing an Approved Retirement Fund (ARF) or an Approved Minimum Retirement Fund (AMRF).
There are a number of reasons why you might choose to use part of your pension to purchase an ARF or AMRF rather than an annuity. These include:
An ARF or AMRF can be inherited
An ARF or AMRF can continue to provide tax free investment growth
Income can be drawn from an ARF (but not from an AMRF) as and when needed
Income can be drawn from an ARF (but not from an AMRF) as and when needed
There are several important issues to be considered when purchasing an ARF or AMRF. Fortunately, the process does not have to be complicated.
If you do not wish to buy an annuity and you do not have guaranteed income for life of €18,000 per annum or more in place, you could consider buying an AMRF with up to €120,000 of your pension.
If you do not wish to buy an annuity and you do have either a guaranteed income for life of €18,000 per annum or more in place, or an AMRF of €120,000, you could consider buying an ARF with the balance of your pension.
An ARF or AMRF is placed in a fund, investment or deposit facility, where any growth achieved will be free of tax. Please note that it is also possible for an ARF or AMRF to fall in value. Low risk deposit ARFs and AMRFs are available, but these will probably not generate high growth.
The main difference between an ARF and an AMRF lies in the scope to withdraw money from them.
An AMRF essentially cannot be used to provide a regular income. Growth can be drawn from the AMRF, but the original investment cannot be touched until one of the following conditions is fulfilled:
you reach age 75
you come to have €18,000 per annum of guaranteed income for life from other sources – note that this typically needs to be a pension of some sort to count as guaranteed.
An ARF can be used to provide income, and indeed from age 60 onwards it is effectively obligatory that 5% of the fund value be drawn down as income every year. You should note, however, that unlike annuity income, ARF income is not guaranteed to last for ever. If the speed at which money is taken from an ARF outpaces the growth that it achieves, then the ARF could ultimately be reduced to nothing.
ARFs can be a smart investment but they are not suitable for everyone. While there are tax advantages to purchasing an ARF, as well as flexibility and the potential for future gains, it is important to realise that an ARF does not provide a guaranteed income for life. As with all major investments, you should be well informed before making a decision.