Your Guide to Retirement Options

Transcription

1 Your Guide to Retirement Options

2 Contents Introduction 3 Overview 4 Personal Pension Plans/PRSAs 5 Defined Contribution Company Pension Plans 8 Additional Voluntary Contributions (AVCs) 11 Retirement Bonds 15 Tax Treatment Of Retirement Options 18 Specified Income 19 Taxation & Revenue Limits 20 How your Annuity Options Impact your Payment Amount 21 ARF Versus Annuity as Retirement Income 22 2 Page 2

3 Introduction As you approach retirement, one of the most important decisions you will make is how to use your pension fund to provide for you and your family in retirement. The options available to you depend mainly on: The type of pension arrangement you have ; and The amount you have in your retirement fund when you retire. The option(s) that is/are right for you will depend on many factors including; The size of your retirement fund; The level of income you and your family will need during your retirement years; The amount of other assets, apart from your retirement fund, you have to fall back on; Whether investment growth or security is more important to you during your retirement years; Whether you wish to pass your retirement fund on to your dependants on your death; and Your current state of health. This guide aims to set out the different options available to you depending on your pension arrangement and sets out the points you should consider for each option. Current taxation and Revenue limits, which may change, are set out on page 20. You should talk to your Insurance & Investments Manager when considering your retirement options. You should carefully consider how to use your retirement fund to provide for your retirement years Page 3 3

4 Overview Personal Pension Plan PRSA Defined Contribution Company Pension Scheme & Retirement Bonds Additional Voluntary Contributions Option 1 * Option 2 Step 1 Retirement Lump Sum Up to 25% Up to 25% Up to 25% Take an amount based on your salary and service with the employer up to a maximum of 1.5 times your salary Amount (if any) will depend on the rules and retirement lump sum entitlement of your main scheme Step 2 Buy an Annuity/ Pension Can use some or all of the remainder of your fund to buy an annuity Can use some or all of the remainder of your fund to buy an annuity You cannot buy an annuity if you take the 25% retirement lump sum option, though money in an ARF may be used to buy an annuity You have to buy an annuity if you take the retirement lump sum option based on salary and service (except if you have AVCs) Can use some or all of the remainder of your fund to buy an annuity depending on the rules and how you take benefits from your main scheme Step 3 Find out if you meet the requirements to invest in an ARF or take taxable cash For more details on these requirements see the section on Specified Income on page 19 Invest in an Approved Retirement Fund (ARF) Take Taxable Cash Invest in an Approved Retirement Fund (ARF) Take Taxable Cash Invest in an Approved Retirement Fund (ARF) Take Taxable Cash The Approved Retirement Fund (ARF) option/ Taxable Cash option is not available (except in relation to AVCs) Invest in an Approved Retirement Fund (ARF) Take Taxable Cash Step 4 PRSA & AVC PRSA Not Applicable Leave the balance of your fund in your PRSA after taking your retirement lump sum Not Applicable Not Applicable Leave the balance of your fund in your AVC PRSA after taking your retirement lump sum See page 6 for further details. *This option does not apply if the proceeds of a Retirement Bond are from a Defined Benefit Company Pension Scheme. Page 4

5 Personal Pension Plans/PRSAs Do you want to take a Retirement Lump Sum? Step 1 Generally, pension funds provide you with an option to take a lump sum at retirement, some or all of which can be taken tax-free. You can use this money in any way you wish. You can even re-invest this lump sum. Currently you can take up to 25% of your fund as a retirement lump sum from your Personal Pension Plan/ PRSA. However, Revenue limits apply in relation to how much of this retirement lump sum may be taken tax-free. Please see page 20 for more details. Do you want to buy an Annuity/Pension? Step 2 You have the option to use some (or all) of your fund to purchase an annuity when you retire. An annuity, commonly known as a pension, provides you with security of income during your retirement years. This was historically the only option available on retirement and it continues to be an attractive option particularly if: Your retirement fund will be your main source of income in retirement ; or Your main priority in retirement is a secure regular income rather than passing on your fund to your dependants. Purchasing an annuity involves using some (or all) of your pension fund to secure a regular income for the rest of your life. The amount of income you receive depends on the annuity rates in force when you buy your annuity. Annuity rates vary depending on: Your age - you will generally secure a larger income the older you are Interest rates The options you choose for your annuity Your choice of annuity can include: 1. (a) Level Payments: Where your payments stay the same each year, or 1. (b) Increasing Payments: Where your payments increase each year by a fixed amount, e.g. 3% each year. 2. A Guarantee Period: You can choose that your payments are secured for a fixed period of up to 10 years, so that if you die during this time, your annuity payments will be paid to your dependants for the remainder of the guaranteed period. 3. A Dependant s Pension: You can specify a percentage of your pension that is to be paid, when you die in retirement, to your spouse/civil partner or dependant. 4. Overlap: If you die during any guaranteed period the dependant s pension will be paid immediately and the guaranteed pension will also continue to be paid. For occupational pension schemes, if the guarantee period is longer than 5 years, the dependant s pension will not commence until the end of the guaranteed period (i.e. no overlap). Annuity/pension payments are subject to income tax at your marginal rate and Universal Social Charge (USC) deductions under the PAYE system. Bank of Ireland Life generally make these deductions at source and remit them to the Revenue Commissioners on your behalf. Full details of the types of annuity benefits that you may purchase are available from your Insurance & Investments Manager. Page 5

6 Step 3 Do you meet the requirements to invest in an ARF or take taxable cash? As an alternative to purchasing an annuity/pension, you have the option to invest in an Approved Retirement Fund (ARF) or you may be able to withdraw the balance of your fund, subject to tax. These options are explained below but are only available if you meet one of the following requirements: You are in receipt of pension income for life of at least 12,700 each year You have used/are using 63,500 of your retirement fund to invest in an Approved Minimum Retirement Fund (AMRF), and/or to purchase an annuity/pension, (see page 7 for details on AMRFs) You use part of your retirement fund to purchase a pension to bring your pension income up to 12,700 per annum Please note that the above figures are applicable for 2015 and may change in subsequent years. For more details on these requirements see the section on Specified Income on page Invest in an ARF An Approved Retirement Fund (ARF) is a flexible arrangement that allows you to remain invested in funds after retirement and withdraw money as and when you wish. Any investment growth within the fund is currently tax free, however, withdrawals are taxed as set out below. An ARF allows you to: Make withdrawals when you want (though the frequency and size of your withdrawals will impact the length of time your ARF can provide you with an income in retirement) Set it up to receive a regular income from your ARF Pass on the remaining value of your fund to your dependants or other beneficiaries on your death. Required Withdrawal Please note, you are required to take a withdrawal of a certain amount each year from your ARF. This is 6% p.a. if the total ARF/Vested PRSA value exceeds 2 million. Where the total ARF/Vested PRSA value is 2 million or less, the required withdrawal is 4% p.a. if you are aged between 60 and 70 years, or 5% p.a. if you are aged 70 years or over for the full tax year. It is important to note that if a high level of withdrawals are made relative to any growth achieved there is a risk that your ARF fund could run out. All withdrawals and income payments are subject to income tax, USC and PRSI (up to age 66). Bank of Ireland Life will make the appropriate deduction and remit it to the Revenue Commissioners on your behalf. Money in an ARF can be used to buy an annuity at any time. Please talk to your Insurance & Investments Manager before you make a decision. Please note: An early encashment charge may apply on an ARF if you withdraw all or part of the value within the first five years. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Page 6

7 What is an Approved Minimum Retirement Fund (AMRF)? An AMRF is similar to an ARF but there is a maximum investment amount for an AMRF, currently 63,500 (January 2015) which is set by the Revenue. An individual can only have one AMRF. You may draw down up to 4% of the value of the assets of the AMRF each year, subject to taxation at the marginal rate. An AMRF becomes an ARF: When you reach age 75 OR If you satisfy the specified pension income requirement as set out by the Revenue before age 75 OR If you die before age 75 whichever event occurs first. Please note that if your AMRF becomes an ARF then the annual required withdrawal will then apply (see page 6). You must notify us should this happen so that we can deduct the correct tax in a timely manner. Money in an AMRF can be used to buy an annuity at any time. 2. Take taxable cash You may be able to take an additional taxable lump sum. You will pay income tax and USC on the amount you withdraw from your fund. Do you want to leave the balance of your fund in your PRSA? Step 4 For PRSA only You have the option of leaving the balance of your fund in your PRSA until age 75 after taking your retirement lump sum. This means you can remain invested without availing of the ARF option. You can take withdrawals subject to satisfying the specified income requirements. If you do not meet the specified income requirements, you can still make withdrawals, as long as you maintain a minimum investment amount (currently E63,500) in your PRSA. Similar to an ARF, you are required to take an annual withdrawal of a certain amount from your Vested PRSA (see page 6). Talk to your Insurance & Investments Manager for more details. Page 7

8 Defined Contribution Company Pension Plans Step 1 Do you want to take a Retirement Lump Sum? Generally, pension funds provide you with an option to take a lump sum at retirement some or all of which can be taken tax-free. You can use this money in any way you wish. You can even re-invest this lump sum. You have a choice in how you take your retirement lump sum but the option you choose will then determine the options available for the balance of your fund (if any). You can take up to 25% of your fund as a retirement lump sum or an amount calculated based on your salary and service with your employer up to a maximum of up to 1.5 times your salary. You will only be able to take the 1.5 times salary if you have 20 years service with the sponsoring employer at normal retirement age. A sliding scale applies where you have less than 20 years service or if you retire or leave that employment before normal retirement age. However, Revenue limits apply in relation to how much of this retirement lump sum may be taken tax-free. Please see page 20 for more details. Step 2 Do you want to buy an Annuity/Pension? The option to use some of your fund to purchase an annuity when you retire is available if you choose the retirement lump sum based on salary and service. An annuity, commonly known as a pension, provides you with security of income during your retirement years. If you choose the retirement lump sum based on salary and service, you have to use the remainder of your fund to buy an annuity. However, if you have paid Additional Voluntary Contributions (AVCs) to the scheme, you don t have to use your AVC fund to buy an annuity. You can choose from the ARF/taxable cash options in respect of your AVC fund subject to satisfying the relevant conditions. The annuity option was historically the only option available on retirement and it continues to be an attractive option particularly if: Your retirement fund will be your main source of income in retirement Your main priority in retirement is a secure regular income rather than passing on your fund to your dependants Purchasing an annuity involves using some or all of your pension fund to secure a regular income for the rest of your life. The amount of income you receive depends on the annuity rates in force when you buy your annuity. Page 8

9 Annuity rates vary depending on: Your age - you will generally secure a larger income the older you are Interest rates The options you choose for your annuity Your choice of annuity can include: 1.(a) Level Payments: Where your payments stay the same each year; or 1.(b) Increasing Payments: Where your payments increase each year by a fixed amount, e.g. 3% each year. 2. A Guarantee Period: You can choose that your payments are secured for a fixed period of up to 10 years, so that if you die during this time, your annuity payments will be paid to your dependants for the remainder of the guaranteed period. 3. A Dependant s Pension: You can specify a percentage of your pension that is to be paid, when you die in retirement, to your spouse/civil partner or dependant. 4. Overlap: If you die during any guaranteed period the dependants pension will be paid immediately and the guaranteed pension will also continue to be paid. For occupational pension schemes, if the guarantee period is longer than 5 years, the dependant s pension will not commence until the end of the guaranteed period (i.e. no overlap). Annuity/pension payments are subject to income tax at your marginal rate and Universal Social Charge (USC) deductions under the PAYE system. Bank of Ireland Life generally make these deductions at source and remit them to the Revenue Commissioners on your behalf. Full details of the types of annuity benefits that you may purchase are available from your Insurance & Investments Manager. Do you Meet the Requirements to Invest in an ARF or Take Taxable Cash? Step 3 If you choose the 25% retirement lump sum you may have the option to invest in an ARF or withdraw the balance of your fund subject to tax. If you have made AVCs, these options may also be available for your AVC fund. These options are explained below but are only available if you meet one of the following requirements: You are in receipt of pension income for life of at least 12,700 each year You have used/are using 63,500 of your retirement fund to invest in an Approved Minimum Retirement Fund (AMRF) and/or to purchase an annuity/pension (see page 10 for details on AMRFs) You use part of your retirement fund to set up a pension to bring your pension income up to 12,700 per annum Please note that the above figures are applicable for 2015 and may change in subsequent years. For more details on these requirements see the section on Specified Income on page 19. Page 9

10 1. Invest in an ARF An Approved Retirement Fund (ARF) is a flexible arrangement that allows you to remain invested in funds after retirement and withdraw money as and when you wish. Any investment growth within the fund is currently tax free, however withdrawals are taxed as set out below. Required Withdrawal Please note, you are required to take a withdrawal of a certain amount each year from your ARF. This is 6% p.a. if the total ARF/Vested PRSA value exceeds 2 million. Where the total ARF/Vested PRSA value is 2 million or less, the required withdrawal is 4% p.a. if you are aged between 60 and 70 years, or 5% p.a. if you are aged 70 years or over for the full tax year. It is important to note that if a high level of withdrawals are made relative to any growth achieved there is a risk that your ARF fund could run out. All withdrawals and income payments are subject to income tax, USC and PRSI (up to age 66). Bank of Ireland Life will make the appropriate deduction and remit it to the Revenue Commissioners on your behalf. Money in an ARF can be used to buy an annuity at any time. An ARF allows you to: Make withdrawals when you want (though the frequency and size of your withdrawals will impact the length of time your ARF can provide you with an income in retirement) Set it up to receive a regular income from your ARF Pass on the remaining value of your fund to your dependants or other beneficiaries on your death What is an Approved Minimum Retirement Fund (AMRF)? An AMRF is similar to an ARF but there is a maximum investment amount for an AMRF currently 63,500 (January 2015), which is set by the Revenue. An individual can only have one AMRF. You may draw down up to 4% of the value of the assets of the AMRF each year, subject to taxation at the marginal rate. An AMRF becomes an ARF: When you reach age 75 OR If you satisfy the minimum guaranteed pension income requirement as set out by the Revenue before age 75 OR If you die before age 75 whichever event occurs first. Please note that if your AMRF becomes an ARF then the annual required withdrawal will then apply (see above). You must notify us should this happen so that we can deduct the correct tax in a timely manner. Money in an AMRF can be used to buy an annuity at any time. 2. Take taxable cash You may be able to take an additional taxable lump sum. You will pay income tax and USC on the amount you withdraw from your fund. Please note: An early encashment charge may apply on an ARF if you withdraw all or part of the value within the first five years. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Page 10

11 Additional Voluntary Contributions (AVCs) Including AVC PRSAs Your AVCs are linked to your employer s occupational pension scheme and should be accessed at the same time as the retirement benefits of your main scheme. Do you want to take a Retirement Lump Sum? Step 1 Generally, pension funds provide you with an option to take a lump sum at retirement, some or all of which can be taken tax-free. You can then use this money in any way you wish. You can even re-invest this lump sum. The amount (if any) of retirement lump sum that you can take from your AVCs is subject to Revenue maximum limits and must take into account any lump sum received from the main scheme. If you received less than the maximum allowable lump sum from your main scheme, you may be able to take some or all of your AVC fund as a lump sum. Step 2 Do you want to buy an Annuity/Pension? You may have the option to use some or all of your AVC fund to purchase an annuity when you retire depending on the rules and how you take benefits from your main scheme. An annuity, commonly known as a pension, provides you with security of income during your retirement years. This was historically the only option available on retirement and it continues to be an attractive option particularly if: Your retirement fund will be your main source of income in retirement Your main priority in retirement is a secure regular income rather than passing on your fund to your dependants Purchasing an annuity involves using your AVC fund to secure a regular income for the rest of your life. The amount of income you receive depends on the annuity rates in force when you buy your annuity. Page 11

12 Annuity rates vary depending on: Your age - you will generally secure a larger income the older you are Interest rates The options you choose for your annuity Your choice of annuity can include: 1.(a) Level Payments: Where your payments stay the same each year; or 1.(b) Increasing Payments: Where your payments increase each year by a fixed amount, e.g. 3% each year. 2. A Guarantee Period: You can choose that your payments are secured for a fixed period of up to 10 years, so that if you die during this time, your annuity payments will be paid to your dependants for the remainder of the guaranteed period. 3. A Dependant s Pension: You can specify a percentage of your Pension that is to be paid, when you die, to your spouse/civil partner or dependant. 4. Overlap: If you die during any guaranteed period the dependant s pension will be paid immediately and the guaranteed pension will also continue to be paid. For occupational pension schemes, if the guarantee period is longer than 5 years, the dependant s pension will not commence until the end of the guaranteed period (i.e. no overlap). Annuity/Pension payments are subject to income tax at your marginal rate and Universal Social Charge (USC) deductions under the PAYE system. Bank of Ireland Life generally make these deductions at source and remit them to the Revenue Commissioners on your behalf. Full details of the types of annuity benefits that you may purchase are available from your Insurance & Investments Manager. Step 3 Do you meet the requirements to invest in an ARF or take taxable cash? As an alternative to buying a pension, you may have the option to invest in an Approved Retirement Fund (ARF) or may be able to withdraw the balance of your AVC fund, subject to tax. These options are explained below but are only available if you meet one of the following requirements: You are in receipt of pension income for life of at least 12,700 each year You have used/are using 63,500 of your retirement fund to invest in an Approved Minimum Retirement Fund (AMRF), and/or to purchase an annuity/pension (see page 13 for details on AMRFs) You use part of your retirement fund to set up a pension to bring your pension income up to 12,700 per annum Please note that the above figures are applicable for 2015 and may change in subsequent years. For more details on these requirements see the section on Specified Income on page 19. Page 12

13 1. Invest in an ARF An Approved Retirement Fund (ARF) is a flexible arrangement that allows you to remain invested in funds after retirement and withdraw money as and when you wish. Any investment growth within the fund is currently tax free, however withdrawals are taxed as set out below. Required Withdrawal Please note, you are required to take a withdrawal of a certain amount each year from your ARF. This is 6% p.a. if the total ARF/Vested PRSA value exceeds 2 million. Where the total ARF/Vested PRSA value is 2 million or less, the required withdrawal is 4% p.a. if you are aged between 60 and 70 years, or 5% p.a. if you are aged 70 years or over for the full tax year. It is important to note that if a high level of withdrawals are made relative to any growth achieved there is a risk that your ARF fund could run out. All withdrawals and income payments are subject to income tax, USC and PRSI (up to age 66). Bank of Ireland Life will make the appropriate deduction and remit it to the Revenue Commissioners on your behalf. Money in an ARF can be used to buy an annuity at any time. An ARF allows you to: Make withdrawals when you want (though the frequency and size of your withdrawals will impact the length of time your ARF can provide you with an income in retirement) Set it up to receive a regular income from your ARF Pass on the remaining value of your fund to your dependants or other beneficiaries on your death. What is an Approved Minimum Retirement Fund (AMRF)? An AMRF is similar to an ARF but there is a maximum investment amount for an AMRF currently 63,500 (January 2015), which is set by the Revenue. An individual can only have one AMRF. You may draw down up to 4% of the value of the assets of the AMRF each year, subject to taxation at the marginal rate. An AMRF becomes an ARF: When you reach age 75 OR If you satisfy the minimum guaranteed pension income requirement as set out by the Revenue before age 75 OR If you die before age 75 whichever event occurs first. Please note that if your AMRF becomes an ARF then the annual required withdrawal tax will then apply (see above). You must notify us should this happen so that we can deduct the correct tax in a timely manner. Money in an AMRF can be used to buy an annuity at any time. 2. Take Taxable Cash You may be able to take an additional taxable lump sum. You will pay income tax and USC on the amount you withdraw from your AVC fund. Please note: An early encashment charge may apply on an ARF if you withdraw all or part of the value within the first five years. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Page 13

14 Step 4 For AVC PRSA only Do you want to leave the balance of your fund in your AVC PRSA? If your AVCs have been made to an AVC PRSA you may have the option of keeping the balance of your fund in your AVC PRSA until age 75. This means you can remain invested without availing of the ARF option. You can take withdrawals subject to satisfying certain criteria. If you do not meet the specified income requirements, you can still make withdrawals as long as you maintain a minimum investment amount (currently E63,500) in your PRSA. Similar to an ARF, you may be required to take a withdrawal of a certain amount from your Vested PRSA each year (see page 13). Talk to your Insurance & Investments Manager for more details. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Page 14

15 Retirement Bonds The options available for your Retirement Bond fund at retirement are tied to the rules of the scheme you have transferred from and therefore are specific depending on your particular case. Below are the general steps you should take in reviewing your options. Do you want to take a Retirement Lump Sum? Step 1 Generally, pension funds provide you with an option to take a lump at retirement, some or all of which can be taken tax-free. You can use this money in any way you wish. You can even re-invest this lump sum. The amount you can take as a lump sum at retirement depends on the rules of the scheme you have transferred from. You should talk to your Insurance & Investments Manager to discuss your options. However, Revenue limits apply in relation to how much of this retirement lump sum may be taken tax-free. Please see page 20 for more details. Do you want to buy an Annuity/Pension? Step 2 If you choose the retirement lump sum based on salary and service, you have to use the balance of your fund to buy an annuity. However, if you have paid Additional Voluntary Contributions (AVCs) to the scheme, you don t have to use your AVC fund to buy an annuity. An annuity, commonly known as a pension, provides you with security of income during your retirement years. This was historically the only option available on retirement and it continues to be an attractive option particularly if: Your retirement fund will be your main source of income in retirement Your main priority in retirement is a secure regular income rather than passing on your fund to your dependants Purchasing an annuity involves using some or all of your fund to secure a regular income for the rest of your life. The amount of income you receive depends on the annuity rates in force when you buy your annuity. Annuity rates vary depending on: Your age; you will generally secure a larger income the older you are Interest rates The options you choose for your annuity Page 15

16 Your choice of annuity can include: 1.(a) Level Payments: Where your payments stay the same each year; or 1.(b) Increasing Payments: Where your payments increase each year by a fixed amount, e.g. 3% each year. 2. A Guarantee Period: You can choose that your payments are secured for a fixed period of up to 10 years, so that if you die during this time, your annuity payments will be paid to your dependants for the remainder of the guaranteed period. 3. A Dependant s Pension: You can specify a percentage of your Pension that will continue to be paid, when you die, to your spouse/civil partner or dependant. 4. Overlap: If you die during any guaranteed period the dependant s pension will be paid immediately and the guaranteed pension will also continue to be paid. For occupational pension schemes, if the guarantee period is longer than 5 years, the dependant s pension will not commence until the end of the guaranteed period (i.e. no overlap). Annuity/pension payments are subject to income tax at your marginal rate and Universal Social Charge (USC) deductions under the PAYE system. Bank of Ireland Life generally make these deductions at source and remit them to the Revenue Commissioners on your behalf. Full details of the types of annuity benefits that you may purchase are available from your Insurance & Investments Manager. Step 3 Do you meet the requirements to invest in an ARF or Take Taxable Cash? Depending on the rules of the scheme you transferred from, you may have the option to invest in on ARF and/or withdraw the balance of your fund, subject to tax. These options may also be available for your AVC fund, if you paid AVCs to the scheme. Provided that the rules of the scheme you transferred from permitted you to access the ARF option, this will only be available if you meet one of the following requirements: You are in receipt of pension income for life of at least 12,700 each year You have used/are using 63,500 of your retirement fund to invest in an Approved Minimum Retirement Fund (AMRF), and/or to purchase an annuity/pension (see page 17 for details on AMRFs) You use part of your retirement fund to set up a pension to bring your pension income up to 12,700 per annum Please note that the above figures are applicable for 2015 and may change in subsequent years. For more details on these requirements see the section on Specified Income on page 19. Page 16

17 1. Invest in an ARF An Approved Retirement Fund (ARF) is a flexible arrangement that allows you to remain invested in funds after retirement and withdraw money as and when you wish. Any investment growth within the fund is currently tax free, however withdrawals are taxed as set out below. Required Withdrawal Please note, you are required to take a withdrawal of a certain amount each year from your ARF. This is 6% p.a. if the total ARF/Vested PRSA value exceeds 2 million. Where the total ARF/Vested PRSA value is 2 million or less, the required withdrawal is 4% p.a. if you are aged between 60 and 70 years, or 5% p.a. if you are aged 70 years or over for the full tax year. It is important to note that if a high level of withdrawals are made relative to any growth achieved there is a risk that your ARF fund could run out. All withdrawals and income payments are subject to income tax, USC and PRSI (up to age 66). Bank of Ireland Life will make the appropriate deduction and remit it to the Revenue Commissioners on your behalf. Money in an ARF can be used to buy an annuity at any time. An ARF allows you to: Make withdrawals when you want (though the frequency and size of your withdrawals will impact the length of time your ARF can provide you with an income in retirement) Set it up to receive a regular income from your ARF Pass on the remaining value of your fund to your dependants or other beneficiaries on your death What is an Approved Minimum Retirement Fund (AMRF)? An AMRF is similar to an ARF but there is a maximum investment amount for an AMRF, currently 63,500 (January 2015) which is set by the Revenue. An individual can only ever have one AMRF. You may draw down up to 4% of the value of the assets of the AMRF each year, subject to taxation at the marginal rate. An AMRF becomes an ARF: When you reach age 75 OR If you satisfy the minimum guaranteed pension income requirement as set out by the Revenue before age 75 OR If you die before age 75 whichever event occurs first. Please note that if your AMRF becomes an ARF then the annual required withdrawal will then apply (Please see above for further details). You must notify us should this happen so that we can deduct the correct tax in a timely manner. Money in an AMRF can be used to buy an annuity at any time. 2. Take Taxable Cash You may be able to take an additional taxable lump sum. You will pay income tax and USC on the amount you withdraw from your fund. Please note: An early encashment charge may apply on an ARF if you withdraw all or part of the value within the first five years. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Page 17

18 Tax Treatment of Retirement Options If you want to pass on some of your pension benefits to your dependants or other beneficiaries following your death in retirement, you need to consider this when choosing from your retirement options. Annuity You can choose to have a guarantee period, which means your pension will be paid for a fixed period of up to 10 years, even if you die in the interim. You can also add a dependant s pension. These options allow you to provide added security for your dependants following your death in retirement. ARF/Vested PRSA The balance of your ARF/Vested PRSA (if any) becomes payable to your estate when you die. The same applies to an AMRF, which automatically becomes an ARF when you die. The tax treatment of the transfer of your ARF/Vested PRSA to your dependants on your death will depend on the relationship between you and the beneficiary: Proceeds of ARF/ Vested PRSA Inherited by: Rate of Income Tax Deducted by Qualifying Fund Manager (QFM)/PRSA Provider Captial Acquisitions Tax (CAT) Spouse or civil partner Child (under 21) of deceased, or of civil partner of the deceased Child (21 or over) of deceased, or of civil partner of the deceased Any other individual If encashed: Treated as income of the deceased in the year of death and subject to tax under the PAYE system at the deceased s marginal rate of income tax plus PRSI and USC as appropriate. If transferred to an ARF in name of spouse/civil partner of deceased: Transfer is exempt from income tax. Subsequent withdrawals by spouse/civil partner will be subject to tax under PAYE system at their marginal rate of income tax plus PRSI and USC as appropriate. None (exemption applies) Taxed at 30%* Treated as income of the deceased in the year of death and subject to tax under the PAYE system at the deceased s marginal rate of income tax, PRSI and USC as appropriate. None (exemption applies) May be liable, normal rules and thresholds apply None (exemption applies) May be liable, normal rules and thresholds apply * The 30% rate of income tax is applied under schedule D Case IV. No reliefs, deductions or tax credits can be set off against this tax and the income tax exception limits and marginal relief do not apply. If your pension benefits are part of your succession planning, you need to consider this as part of your retirement plan. Page 18

19 Specified Income What are the requirements? In order to invest in an Approved Retirement Fund (ARF) or take taxable cash, you need to have pension income for life, at the time of drawing your retirement benefits of at least 12,700 a year. This is known as specified income. You do not have to meet this requirement if you are aged 75 or over. If you do not have this specified income then you must use 63,500 (or the balance of your fund if less) to invest in an Approved Minimum Retirement Fund (AMRF) and/or to buy an annuity. If you have previously met this requirement you do not have to satisfy this condition again. How to Check if you Meet the Requirements You Meet the Requirements if: You are in receipt of pension income for life of 12,700 each year OR You have used/are now using 63,500 of your retirement fund to invest in an Approved Minimum Retirement Fund (AMRF) and/or to purchase an annuity/pension OR You use part of your retirement fund to set up a pension to bring your pension income up to 12,700 per annum Please note that the above figures are applicable for 2015 and may change in subsequent years. There are three simple steps to find out if you satisfy the specified income test: 1. Find out what your State Pension entitlement is (single life rate) 2. Add to this any other pensions that you are currently in receipt of 3. If there is a shortfall, find out if your retirement fund can buy an annuity to bring you up to 12,700 a year If you are receiving the maximum rate of State Pension (Contributory), which is currently per week ( 11,975 annually), you will then need to have supplementary guaranteed pension income of 725 annually. If your State Pension benefit is a smaller amount, you will need more supplementary pension income to make up the remainder of the 12,700 a year. There are certain criteria that must be satisfied in order for pension income to be counted towards the 12,700 total. Your Insurance & Investments Manager will be able to help you find out: What pension income counts towards the 12,700 total If you meet the requirements should you want to invest in an ARF or withdraw some or all of your fund, subject to tax Page 19

20 Taxation & Revenue Limits Maximum Fund There is a limit on the maximum fund that can be built up on retirement. This is currently 2,000,000. This figure includes all of your pension funds, including the capital value of any retirement benefits drawn down since 7th December Where the relevant limit is exceeded, the excess in your pension funds at retirement will be liable to a once off Income Tax charge. Taxation on Retirement Lump Sums Under current Revenue rules the first 200,000 of any retirement lump sum is tax-free with any balance up to 500,000 subject to Income Tax at the standard rate. Any amount paid out in excess of 500,000 will be taxed at your marginal rate and will also be subject to PRSI and the Universal Social Charge. Any retirement lump suns taken on or after the 7th of December 2005 will count towards these limits. Taxation on other Retirement Income Annuity/pension payments are subject to income tax at your marginal rate and USC deductions under the PAYE system. Bank of Ireland Life generally make these deductions at source and remit them to the Revenue Commissioners on your behalf. Any withdrawals from an Approved Retirement Fund (ARF), Approved Minimum Retirement Fund (AMRF) or Vested PRSA are subject to income tax, USC and PRSI (up to age 66 only). Bank of Ireland Life also deduct these charges from your withdrawal. If you take an additional taxable lump sum, it will be liable to income tax at your marginal rate and USC. Page 20

21 How your Annuity Options Impact your Payment Amount The table below shows the differences in payments you can expect depending on the annuity options you choose using purchase money (fund) of E150,000. Level Payments Increasing Payments at 2% p.a. Spouse/ Civil Partner/ Dependant Pension 10-year Guaranteed Period 5-year Guaranteed Period Annual Payments E6,880 E6,775 E6,190 E6,160 E5,275 E5,200 E4,855 E4,825 Note: This table is for illustration purposes only. All figures are based on a retiree with Purchase Money of 150,000 at age 65. The Dependant s Pension is assumed to be 50% of the main pension, dependant is assumed to be age 63 and commission is 2%. Figures correct as at October These figures are before tax. Warning: These figures are estimates only. They are not a reliable guide to the future performance of your investment. Page 21

22 ARF Versus Annuity as Retirement Income The table below shows the difference between an ARF and an annuity as a source of retirement income based on a purchase money (fund) of 150,000. Figures are correct as at December 2014 using gender neutral rates. Pension bought at: Annuity rate of 3.53% and payments increasing by 2% p.a. ARF growing at 3% p.a. ARF growing at 6% p.a. Age Annual Income Before Tax Cash Value Before Tax Annual Income Before Tax Cash Value Before Tax Annual Income Before Tax Cash Value Before Tax 65 5, , ,638 7, , , , ,042 7, , , , ,208 8, , , , ,128 8, , , , ,794 8, , , , ,202 8, , , , ,342 8, , , , ,207 9, , , ,919 92,791 9, , , ,098 85,086 9, , , ,280 77,082 9, , , ,465 68,773 9, , , ,654 60,150 9, , , ,848 51,205 10, , , ,045 41,929 10, , , ,245 32,312 10,548 99, , ,450 22,346 10,759 93, , ,659 12,022 10,974 86, , ,873 1,330 11,194 79, , , ,418 71, , ,646 63, , ,879 54, , ,117 44, , ,359 34, , ,606 22, , ,858 11, , ,116 0 The annuity figures assume a retirement age of 65. The annuity figures are based on payments increasing by 2% each year, no dependant pension, no guarantee period and 2% commission is payable. The ARF illustrations above assume that an initial 5% withdrawal is taken and subsequent withdrawals increase at a rate of 2% p.a. and that 1.5% fund management charge is deducted annually. The growth rates are for illustration purposes only and are not guaranteed. Unit prices can fall as well as rise. Actual investment growth depends on the performance of the underlying assets and may be more or less than illustrated. Withdrawals from your ARF will be subject to income tax, USC and PRSI (up to age 66). Please note, you are required to take a withdrawal of a certain amount each year from your ARF. From the 1st January 2015 this is 6% p.a. if the total ARF/Vested PRSA value exceeds 2 million. Where the total ARF/Vested PRSA value is 2 million or less, the required withdrawal is 4% p.a. if you are aged between 60 and 70 years, or 5% p.a. if you are aged 70 years or over for the full tax year. Warning: These figures are estimates only. They are not a reliable guide to the future performance of your investment. Warning: If you invest in an ARF you may lose some or all of the money you invest. Warning: The value of your investment may go down as well as up. Page 22

23 To improve our service to you, calls may be recorded. Terms and conditions apply. This brochure is based on our understanding of current legislation and Revenue practice as at January While great care has been taken in its preparation, this document is of a general nature and should not be relied on in relation to specific issues without appropriate financial, insurance, investment or other professional advice. The content of this document is for information purposes only and does not constitute an offer or recommendation to buy or sell any investment or to subscribe to any investment management or advisory service. While the information has been taken from sources we believe to be reliable, we do not guarantee their accuracy or completeness and any such information may be incomplete or condensed. All opinions and estimates constitute beast judgement at the time of publication and are subject to change without notice. In the event of any changes in taxation or legislation, Bank of Ireland Life may amend the terms and conditions of the relevant contract to take account of any such changes. The details shown above relating to this fund and its composition are as at the date of this document and may change over time. If there is any conflict between this document and the policy conditions, the policy conditions will apply. Bank of Ireland Life is a trading name of New Ireland Assurance Company plc. New Ireland Assurance Company plc trading as Bank of Ireland Life is regulated by the Central Bank of Ireland. Bank of Ireland Insurance & Investments Limited is regulated by the Central Bank of Ireland. Bank of Ireland Insurance & Investments Limited is a tied agent of New Ireland Assurance Company plc. Members of Bank of Ireland Group. Warning: The value of your investment may go down as well as up. Warning: This product may be affected by changes in currency exchange rates. Warning: If you invest in this product you may lose some or all of the money you invest. Page 23

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