7 Differences of Annuity and ARF [Guide for Retirement Pension]

There are many different types of pension retirement options in Ireland, and it can be difficult to know which one is right for you. In this blog post, we will discuss the difference between an annuity and an Approved Retirement Fund (ARF) . We will also provide some tips on how to choose the right option for your needs.

What Is an Approved Retirement Fund (ARF) and How Does It Work?

An Approved Retirement Fund (ARF) is a post-retirement agreement. When you retire from a pension contract, and after you have taken the lump sum of your retirement, the remaining balance of your pension fund may be put into an ARF.

You can choose where you wish to invest and can take a regular income or one-time cash lump sum from your ARF at any time you’d like. The income you draw down from the ARF is subject to taxation at your marginal rate, plus the universal social charge, in addition to PRSI when you are younger than the age of 66. You can also opt to use the funds in your ARF for the purchase of an annuity (an income that lasts for the rest of your life) in the future.

What Is an Annuity and How Does It Work?

An annuity is a life insurance policy that pays out a fixed sum of money over a set period. Annuities are typically used as an income replacement during retirement. When you purchase an annuity, you will pay a lump sum of money to the insurance company. In return, the insurance company will agree to pay you a fixed sum of money every month for the rest of your life.

There are several options to choose from when buying an annuity. A Single Life Annuity is payable for the remainder of your life. If you have the Joint Life Annuity, the pension portion will be paid to your spouse when you die . If you opt to add a Guaranteed Period, the pension will be due for a specified time regardless of whether you die within that period. A Level Annuity is when the amount of the Annuity is constant throughout your lifetime, and an Escalating Annuity is when your Annuity payment grows at a predetermined annual rate.

It is essential to pick an annuity that is in line with your personal needs and those of your spouse when you retire. With this, seeking financial advice before deciding to get an annuity is essential.

What Are the Differences Between ARF and Annuity?

1. Flexibility to withdraw your money.

With an ARF, you have the flexibility to make withdrawals from your account at any time. You can withdraw money from your approved retirement fund (ARF) whenever you want to, but you must pay taxes on withdrawals. There is a compulsory withdrawal rate of 4% annually that increases to 5% per year when you reach 70. Regular withdrawals decrease the value of the ARF, and it could bomb-out while you’re alive ie you outlive it.

If you choose an annuity, you are locked into the contract and will only receive the income that was decided at outset.

2. Ability to invest your money

With an ARF, you can continue to invest your money and grow your account balance. The NRFM Self-Invested ARF offers the holder the opportunity to manage their retirement funds without the investment restrictions usually found with traditional ARFs with insurance companies.

The self-invested ARF is designed for individuals comfortable with making their own investment decisions and who have a clear understanding of investment risk.

With an annuity, there are no investment decisions to be made, as you have simply bought a guaranteed income from the insurance company, irrespective of how markets perform. ..  

3. Risk adversity

Annuities are a better option for those who want to be protected from risk factors like the volatility of the stock market and want a secure income during their retirement. 

Economic and stock market volatility cycles won’t impact your earnings. You have the peace of mind that your money is intact. 

With the approved retirement fund (ARF) , you are taking on the investment risks as you, with your financial advisor are making an active investment decision to invest in a particular asset class.  Investment returns will vary and can fall as well as rise.  Future investment returns are not guaranteed. A strategy for investing must be carefully managed to ensure that the income is sustainable since returns cannot be assured.

4. Income tax payment

For an ARF, you will pay income taxes on money that you withdraw from your account. The withdrawals you make from your approved retirement fund (ARF) are subject to income tax, the Universal Social Charge (USC), and the PRSI (where applicable). In the meantime, the ARF will remain invested in the funds that you choose. Taxes will be deducted at the source by the ARF provider.

Similarly, with an annuity, the income is subject to income tax, PRSI, and USC and will be deducted by the annuity provider at the source.

6. Long-term financial support

Another advantage of Annuity is you will receive a guaranteed income for the rest of your life. Your earnings will continue to be paid no matter the time you live.

On the other hand, if you did not invest your approved retirement fund (ARF) wisely, there’s the possibility that part or all of the funds could be exhausted before it is fully utilized.

7. Outcome after policyholder’s death

With an annuity, when the policyholder dies, the payments stop, and there is no death benefit. 

When the ARF policyholder dies, the ARF may pass to their next of kin,  If the next of kin is their spouse then they have the option to “step in” to the shoes of their deceased spouse and become the ARF holder or alternatively, they can decide to withdraw all monies from the ARF, but this will be treated as income and taxed as such.  The approved retirement fund (ARF) can be used to purchase an annuity for the beneficiary 

The preservation of assets is the primary benefit of an ARF since it can survive the death of the owner. 

The main difference between these two is that annuity payments die with the holder, while the ARF will pass to the next of kin of the deceased.  

How Do You Decide Which Option Is Best for You?

The type of post retirement plan  that is right for you will depend on your individual needs and circumstances. If you are looking for a policy that will provide you with a steady income stream during retirement and don’t want to take any investment risk then an annuity may be the better option. 

If you are looking for a policy that offers more flexibility and allows you to continue to grow your account balance, ARF may be the better choice. Ultimately, the decision between an approved retirement fund (ARF) and an annuity is a personal one and should be made with the help of a financial advisor.

When deciding whether an approved retirement fund (ARF) or annuity is right for you, it is important to seek professional financial advice from a Qualified Financial Advisor  to ensure that you are making the best decision for your individual needs. 

 

As you age, you may start to worry about retirement. Will you have enough money saved up? How will you live once you stop working? These are valid concerns, but they don’t need to cause anxiety.

In this blog post, we will discuss the benefits of pension retirement in Ireland and how it can help ease your fears of getting old. We will also provide tips on how to save for pension retirement and make the most of your golden years!

Why Do People Fear Getting Old?

Gerontophobia, or the fear of aging, is a real phenomenon. It can be caused by many things, including the loss of loved ones, changes in our physical appearance, and the fear of declining health. Whatever the reason, getting old can be scary for some people.

One evident reason why people fear old age because of their inability to work and earn a living. This can be a major source of anxiety for many people. As people grow old, they become more vulnerable to illnesses and diseases that need more financial and emotional support.

For some people, growing old also means losing their independence. They may no longer be able to drive or take care of themselves. This can be a very difficult adjustment for many seniors.

However, there are many benefits to getting older that can help ease your fears.

One of the biggest benefits is that you will have more time to do the things you enjoy. Seniors are often eligible for discounts on travel, entertainment, and other activities. So, even though your income may be reduced, you can still enjoy your life to the fullest.

Another benefit of getting older is that you will have more wisdom and life experience. You can use this knowledge to help others who are going through similar challenges.

Finally, getting older can give you a sense of peace and contentment especially if you have saved enough money for retirement. After years of working hard, you can finally relax and enjoy the benefits of pension retirement. You’ve earned it!

Why Are Pension Retirement Plans Important as You Grow Old?

You are retired from your job but not from living. There is a chance that you have a fresh set of goals for your life post-retirement. However, you might also wish to continue living your life without having to worry about the cost of living.

By planning for your personal retirement, you can determine the steps to reach your goals in life without financial commitment. A Pension Plan is important because it provides a regular income in retirement. This can help to cover your basic living expenses and allow you to enjoy the benefits of pension retirement.

There are many pension plans available, and it’s important to choose what suits your needs. You should consider how much money you need to live on and how long you want to receive payments. You should also think about how you want to receive your pension payments. .

What Are the Available Options for Pension Retirement in Ireland?

If you’re a tax resident and working in Ireland, you’re probably wondering about the benefits of pension retirement and how pension retirement works in Ireland. The good news is that the process is relatively straightforward. The first thing you need to do is speak to a Qualified Financial Advisor who will identify your retirement goals.

Irish State Pension

The Irish government also provides a state pension from age 66. . If you’re eligible, you can receive up to €253 per week. The amount you receive will depend on your age and how much PRSI (Pay-Related Social Insurance) you have paid over the years.

You can apply for the state pension by contacting the Department of Social Protection.

Starting a Pension

You can start saving for your retirement as early as age 18, assuming you have an income from employment. The sooner you start, the better. This is because your money will have more time to grow.

You can make contributions to your pension through your employer or personally if you are self-employed. The government also offers tax relief on these contributions, so it’s worth considering if you’re looking for ways to reduce your tax bill.

Once you reach retirement age, you can start drawing down on your pension. You can choose to take a lump sum and/or an annual pension. The amount you receive will depend on how much money you have saved up.

Why Start a Self-Invested PRSA (SIPRSA)?

With a Self-Invested Pension Security (SIPRSA), you have more control over the way your pension funds are invested. You can pick from a greater variety of investment options which includes bonds, shares, and direct property. It is also possible to make changes to your investment portfolio as your financial circumstances change.

Here are more reasons why SIPRSA is a must-have pension plan in Ireland:

• Flexibility: Self-invested PRSA contracts offer clients the broadest range of investments available.
• Transparency: Fees and charges are clear and there are no entry or exit penalties with PRSA contracts.
• Control: Clients retain investment control of their PRSA investments and are signatory on all of their PRSA transactions.
• Investment Choice: Allowable investments include deposit accounts, foreign currency, stockbroking accounts, property, government bonds, and private equity. You are also not restricted to any provider, so you have one pension contract but can have a number of different investments and providers/structures.
• Taxation: Investment growth and capital appreciation generated in PRSA contracts are exempt from income tax and capital gains tax.

Your fear of getting old can be greatly reduced by preparing for your pension retirement now. It is important to have that peace of mind that you have a plan and are ready for your future. Your financial advisor and NFRM can help you with that by providing the best pension plan for you and giving you all the information you need to make an informed decision.

Why Choose NRFM in Securing a Pension Retirement in Ireland?

There are many reasons to choose NRFM for your pension retirement needs. We have over 30 years of experience helping people plan for their retirement. We offer a wide range of pension plans and can help you find the one that best suits your needs.

Newcourt Retirement Fund Managers Ltd (NRFM) provides a range of Self Invested products including Approved Retirement Funds (ARFs), Personal Retirement Bonds (PRBs), and Personal Retirement Savings Accounts (PRSAs). It is our goal to provide an opportunity for individuals to manage their own pension funds, without the involvement of an insurance company.

When deciding which pension plan is right for you, it is important to seek professional financial advice from a Qualified Financial Advisor to ensure that you are making the best decision for your individual needs.