Sunday 15 December 2019

Accessing your pension at 65 - your options

Business Q&A

Question: I am 65 years, retiring soon and about to access my pension - What options are available to me?

Answer: When you access your pension and after getting your lump sum you will invariably be asked to choose what you wish to do with the balance of the fund.

Your options at this point are typically:

A. Purchase an Annuity or

B. Invest in an ARF / AMRF

It can be very difficult to choose between these two options. Let's consider the pros and cons of both options and try to help you understand which option may be better for you.

An Annuity is a financial product whereby after taking your tax-free lump sum from your pension fund, you elect to allow the insurance provider / pension provider (or another insurance provider / pension provider) to retain ownership of your residual pension fund and in return they will give you a guaranteed income for the rest of your life. Sometimes this annuity income will also allow a partial income payment for your spouse in the event of your subsequent death.

Take the following example:

Mary, married, age 64, has €260,000 left over after taking a tax-free lump sum and she agrees the following annuity contract with her pension provider:

Annuity Purchase Price:€260,000

Annuity Rate:3.6%

(Annual Income of €9,360 = €250,000 x 3.6%)

Term:Whole of Life

Spouse Pension:50%

Inflation of Income:2% per annum

This means Mary will give up her €260,000 in return for a guaranteed income of €9,360 per annum for the rest of her life. This income will increase by 2% each year to keep pace with inflation. There is a provision for a spouse income of €4,815 (50% of €9,360) in the event of Mary's death. The result of this is that Mary will need to live for about 22 years (to age 86) in order to get her €260,000 back. In the event of her passing away prematurely, her spouse will receive a 50% income payment per annum.

ARF / AMRF option: This allows you to retain ownership of your funds. An ARF / AMRF is established with your current insurance provider or another provider on the market if you so wish. These funds are then invested in much the same fashion as your original pension. You then have the option of taking income from the ARF fund as and when you see fit (subject to a minimum of 4% per annum from age 61). You own the ARF fund. How long it lasts is up to you and how you manage the level of income you take.

We can see at a very basic level the annuity option involves giving up ownership of your pension fund in return for fixed /agreed income whereas the ARF/AMRF option involves retaining ownership of your pension fund, so you can vary your income as you see fit.

Trying to decide which route is best for you can be difficult. The best way of figuring it out is to examine both with a Financial Advisor under the following sample headings: Certainty of Income; Flexibility; Investment Risk; Inheritance; Value for Money

For more information on retirement and accessing my pension please contact Jim Doyle on 053 9110380 or email

Wexford People

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