News

The Finance Bill was published on the 21^st October, 2021. This is a document that legalises changes from the recent Budget. The Bill also gives additional information beyond what was revealed on Budget Day and it includes some changes for Pensions in Ireland.

Under current regulations, when someone retires, after they take a tax free lump sum from their pension, unless they have a guaranteed income of €12,700 for life or are aged 75 or over, the first €63,500 of the balance of their retirement funds must be invested in an Approved Minimum Retirement Fund (AMRF). This means that the maximum they can withdraw each year as an income is 4% of the value. For some people this results in all of their retirement money, after they have taken their tax free lump sum, remaining tied up until they reach age 75. The original ethos for this was to ensure that people had sufficient income in their later years so they would not be fully reliant on the State pension.

However, from 2022 the requirement for an AMRF is being removed and all existing AMRF policies will automatically become Approved Retirement Fund (ARF) policies.

The outcome of this is that people will have full access to the money currently invested in AMRF policies; however, it is important to remember that Income Tax, USC and PRSI if applicable, will be applied to any withdrawals made. Under current Revenue legislation, from the age of 61 you must draw a minimum of 4% of your ARF as an income each year and this increases to 5% from age 70. The advantage of this change is that people who currently have their money tied up in AMRF policies will be able to access it as required from January 2022 and going forward there is no requirement to invest any retirement funds in an AMRF policy.

Another change in the Finance Bill is how death benefits are treated when someone dies while they are a member of an Occupational Pension Scheme (this also includes one-man schemes). Currently, the maximum amount that can be paid out into the deceased’s Estate if they pass away while they are in service is 4 times salary, along with any employee contributions. Any balance must be used to purchase an Annuity for their dependents, which is not usually an attractive option. From January 2022, if a Scheme Member dies while still in service, four times salary will be paid out to their Estate along with the employee’s own contributions and any balance can be invested in an ARF policy for their spouse or dependents. The removal of the AMRF requirement (as discussed already) makes this development even more attractive, with 100% of the residual amount now able to go directly into an ARF allowing for greater access to funds. It is expected that the dependents may be able to opt for a taxable lump sum rather than an ARF; however, it is not clear what tax will apply to this payment. It may be Inheritance Tax or Income Tax. Although it is not clarified yet it is expected that Income Tax would be due on the payment.

If you have an AMRF policy, or you are paying into a pension either on a personal level, through work or through your own Company, I recommend that you contact your Financial Advisor to discuss how these changes may affect you.

Marie Carr MSc BBS QFA RPA SIA is a Qualified Financial Advisor, Retirement Planning Advisor and Specialist Investment Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on marie@jfl.ie