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Thursday 20 September 2018

Pros and cons of the AMRF route for your pension

Business Q&A

Question: I understand there are restrictions on funds I place into an Approved Minimum Retirement Fund (AMRF) but I am unsure of the detail. Can you clarify this for me?

Answer: An AMRF is an Approved Minimum Retirement Fund. It is commonly used for those who decline the option of using their retirement fund to purchase an Annuity - an income for life, and where the option of an ARF (Approved Retirement Fund) is not allowed under Revenue rules.Whilst an AMRF allows you to retain ownership for your pension monies, there is a limit to the amount you can withdraw from your AMRF before the age of 75. You can only withdraw a maximum of 4% per annum from the AMRF.

Revenue rules require you to invest €63,500 into an AMRF prior to investing in an ARF, down from €119,800 in recent years.

A broad outline of the Revenue rules that must be satisfied in order not too have to enter into an AMRF are:

1. You must have a minimum guaranteed income for life, currently set at €12,700 per annum, or:

2. You must already have previously invested €63,500 from the proceeds of another Pension or current Pension in an AMRF (Approved Minimum Retirement Fund)

A simple example of the above rules in operation is:

Male aged 67 with a guaranteed income of €11,000 per annum, who declines an Annuity option available to him with his Personal Pension and who does not currently have an AMRF in existence:

Pension Fund of: €80,000

Tax Free Cash Available of 25%: €20,000

Balance of pension funds remaining

after taking tax free cash: €60,000

Invest in an AMRF as Revenue Rules are not exceeded: €60,000

So, now that I have placed the balance of my Pension Fund in an AMRF, how is my money invested and what are the taxation implications on any withdrawals I make from the AMRF?

Monies in your AMRF can be invested in a wide range of asset classes, depending on the level of risk and volatility you are prepared to accept. This can range from simple cash / deposit based AMRF options, offering very poor returns of circa 0.2% per annum at present or, at the opposite end of the spectrum, investing in property, equity bonds and the stock market. Any withdrawals you take from your AMRF are assessable for Income Tax, PRSI (in certain cases) and USC. There is a limit to the amount you withdraw from your AMRF

If we take the above example of the €60,000 AMRF, this equates to an AMRF distribution of €2,400 per annum that can be taken to age 75.

The AMRF route has obvious disadvantages in terms of access. It does however offer the opportunity of retaining ownership of your monies, offers investment control and also the opportunity of leaving these funds to your estate in the event of your untimely death.

For more information on pensions and investments, please contact Michael Coburn on 053 9170507 or email mcoburn@rda.ie

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