I’m about to retire, but what is the best option to take with my personal pension fund?

Q I’m due to retire soon and I recently received a maturity notice from my pension provider. They say it’s a personal pension and that I have the following options. Take 25% of the fund tax free and then choose either an Approved Retirement Fund or Annuity. Can you tell me the difference between each and what’s best please?

A Choosing the right options for your retirement is a big decision and it is important to get professional financial advice. This article aims to briefly explain the options on retirement.

Options available with your pension fund

The good news is that you can take a cash lump sum when you retire. With the balance of your pension fund, you will have several options:

1. Take a cash lump sum.

2. Use the fund remaining to: A. Purchase an annuity (a guaranteed income for life. B. Invest in an Approved Retirement Fund (a more flexible approach to providing your retirement income. C. Take a taxable lump sum

These options are explained below:
1.Take a cash lump sum.

You are entitled to take a cash lump sum of 25% from your pension fund if you wish and this is tax free up to a maximum lifetime limit of €200,000. The next €300,000 of any lump sum is taxable at 20%. Anything over €500,000 will be taxable at your marginal rate of income tax, USC and PRSI (if applicable).

2. Options with the balance of your pension fund

So, once you take a cash lump sum from your pension, the options with the balance are as follows: 1. Purchase and Annuity 2. Invest in an ARF 3. Take a taxable lump sum.

2.1. What is an annuity?

An annuity is a regular income payment that is guaranteed for the rest of your life. After taking your cash lump sum, the balance of your pension fund can be used to buy an annuity (income) from a life insurance company. You have the option to ‘shop around’ to get the best annuity rate for you. The income you get will depend on things like age, guarantee period, level of increasing payments and if income is to be paid to a spouse on your death.

2.2. What is an Approved Retirement Fund (ARF)?

If you do not wish to purchase an annuity, then you have the option to reinvest the balance of your pension fund in an ARF. An ARF allows you to preserve, manage and control your retirement fund. You can invest your money in suitable assets and decide how much taxable income you want to withdraw each year, subject to a minimum withdrawal amount, from when you are aged 60. Unlike the annuity option, it does not provide a guaranteed income for the rest of your life. This is an option if you’d like to grow your investment fund during your retirement years as you can choose funds depending on the level of risk you are prepared to take. You also benefit from tax free growth on these funds.

A big plus in favour of ARF’s is that the value of your ARF can be passed to your family, spouse, or children after your death. The downside of an ARF is that without careful planning it is possible to reduce your fund to zero before you die.

2.3. Taxable Lump Sum

You have the option of taking the money as a taxable lump sum. This money will be taxable at your marginal rate of income tax, USC and PRSI (if applicable).


Choose an annuity if:

  • You want the certainty of a guaranteed income for life.
  • You don’t want to take investment risks with your retirement fund.
  • You want to avoid having to invest in an AMRF/ARF (see overleaf).

Choose an Approved Retirement Fund if:

  • You want your retirement fund to have the potential to continue to grow.
  • You want more control over how your fund is invested.
  • You want to pass on the balance of your fund after your death.
  • You want to make withdrawals as and when you need to.
  • You can tolerate a certain level of investment risk.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top