Retirement Planning:

Approved Retirement Fund (ARF)

An ARF is a post retirement investment fund. It is an alternative to buying an annuity (i.e. an annual income) with your pension fund at retirement. Similar to pre-retirement pension structures there are a different types of ARFs. Insured ARFs are held within a life company and are used by the majority of retirees. Self-Administered ARFs are a little more sophisticated from an investment perspective and give holders significantly more options with regard how they invest their funds.

Tax treatment within the ARF and on income drawn down

An ARF is a tax free investment structure and investments held within the ARF are allowed to grow free from tax. Only when funds are drawn from an ARF will a tax liability arise for the ARF investor. Funds drawn from an ARF will be liable to income tax (plus USC and PRSI if liable) in the same way a salary is liable to income tax and levies. The ARF provider is under an obligation to deduct income tax (plus potential levies) under the PAYE rules. In effect the ARF beneficiary is treated as an employee of the ARF provider in respect of the income taken from the ARF.

It is compulsory for the holder to draw down a minimum of 4% per annum from the ARF where the value of the scheme is €2 million or less and the ARF holder is less than 70 years of age. When the ARF holder is 70 or more years of age, a 5% annual drawdown rate applies. Where the total retirement fund assets are worth more than €2 million there is a 6% annual drawdown requirement on ARF monies over this threshold. The obligatory drawdown in respect of ARF investments will only apply where an ARF investor is aged 61 years or over in the tax year.

Options at retirement

At retirement the vast majority of individuals will be entitled to take a tax free lump sum (typically 25% of the value of the pension fund) from their pension arrangement. The individual then has the option of investing the balance of the pension fund into an ARF/AMRF.
If an ARF is elected at retirement there is a requirement that the retiree must be in receipt of guaranteed pension income or annuity of at least €12,700 per annum. Where an individual does not have this ‘specified income’ in retirement they must invest €63,500 in an Approved Minimum Retirement Fund (AMRF). Alternatively, the individual can use €63,500 of their retirement fund to purchase an annuity from a life assurance company.


An Approved Minimum Retirement Fund (AMRF) is very similar in nature to an ARF (i.e. the funds grow free from tax within the AMRF and they can be invested in a manner decided by the beneficiary). The original €63,500 invested in AMRF cannot be accessed in full until age 75 at which point the AMRF becomes an ARF. However, an annual withdrawal of up to 4% of the value of assets in an AMRF can be drawn down as income (subject to taxation) if the holder wishes to do so but this is not compulsory. Any such distribution taken from the AMRF can be used to reduce the minimum distribution amount required from the ARF assets in that year.

Tax treatment of ARF on death

The tax treatment of an ARF on death will depend on whom the ARF/AMRF assets are being passed to. A spouse can ‘step into the shoes’ of a deceased ARF holder and take over the ARF in their name without any income tax or capital acquisitions tax liability arising. Any draw down of income from the ARF by the surviving spouse will be liable to income tax and levies in the normal manner. The tax liability of an ARF passing from the original ARF investor to a child or from a surviving spouse’s ARF to a child will depend on the age of the child receiving the ARF assets:

  • Where the ARF assets pass to a child under the age of 21 the proceeds will be liable to Capital Acquisitions Tax (CAT) in the normal manner.
  • Where the ARF assets pass to a child aged 21 or over the proceeds will be liable to income tax at a flat rate of 30%.

Where the ARF assets pass to anyone other than to a surviving spouse or child, an income tax liability will arise for the ARF investor in the year of death and the net proceeds passing to the beneficiary will be liable to Capital Acquisitions Tax (CAT) in the normal manner.