WHAT IS AN APPROVED RETIREMENT FUND?
An approved retirement fund (ARF) is a post retirement investment fund.  This is an alternative to buying an annuity, i.e. an annual income, with your pension fund at retirement.  The following pension investors can avail of this option at retirement.

• Personal Pension Plan Investors
• Personal Retirement Savings Plan Investors
• Proprietary Directors owning greater than 5% of the voting rights of a company
• Members of employer sponsored pension schemes who have made Additional Voluntary Contributions (AVC)

HOW DOES IT WORK?
An ARF could be a cash balance in a bank account, a share portfolio with a stockbroking house or an investment in a managed fund with a life company, a tracker bond or a combination of one or more investments.  (this is not an exhaustive list).  It is a tax exempt investment vehicle designed to provide for your retirement needs.

WHY THE ITC ARF/AMRF?
Many ARF/AMRF investments currently on offer from financial institutions, stockbrokers or other product providers offer limited investment options typically from a range of products of services offered by themselves.  The ITC ARF/AMRF offers you the greatest investment freedom possible under the legislation.  There is no restriction on the assets classes, products or investment funds that can be invested in.  You determine the assets that your ARF is invested in.

Similar to a pension scheme an ARF is a tax free investment vehicle.  The investments are allowed to grow free of Income Tax and Capital Gains Tax while invested in the ARF.

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 in the same way a salary is liable to Income Tax and the ARF provider is under an obligation to deduct Income Tax under the PAYE rules, effectively the ARF investor becomes an employee of the ARF provider in respect of the income taken from the ARF.

Note - Budget 2006 proposes to introduce an obligatory drawdown of funds from an ARF of 3% p.a.

It is proposed that this 3% drawdown will not apply in full until the tax year 2009.  In the interim it is proposed that a rate of drawdown of 0% will apply in the tax year 2006, a 1% drawdown in the tax year 2007 and a 2% drawdown in the tax year 2008. 

This obligatory drawdown in respect of ARF investments will only apply where an ARF investor is aged 60 years or over in the tax year.

Income tax rules will apply to the proposed draw downs from ARFs.

WHAT ARE MY OPTIONS AT RETIREMENT?
Assuming you fall into one of the categories mentioned above you are entitled to invest some of all of your entire retirement fund  an ARF.  If you take this option, you may also opt for a tax free lump sum of 25% of

ARE THERE ANY CONDITIONS IMPOSED WHEN INVESTING IN AN ARF?
The individual must have a pension or annuity payable for the life of currently €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 otherwise known as an AMRF (please see details below).  Alternatively the individual can use €63,500 of their retirement fund to purchase an annuity from an insurance company.

An Approved Minimum Retirement Fund (AMRF) is very similar in nature to an ARF, i.e. the funds can be invested in any number of ways.  The main restriction  is in relation to drawing down benefits.  The original €63,500 invested in AMRF cannot be accessed until age 75 at which point the AMRF becomes an ARF.

Certain transactions with an ARF will create an income tax liability for the ARF investor.

Broadly these transactions are:
• Loans from the ARF to the ARF investor or a connected individual
• The disposal of property by the ARF investor to his/her ARF
• The purchase of property by the ARF investor from his/her ARF
• The purchase of holiday homes or residential property used by the ARF investor or a connected person
• The purchase of shares in a close company (or similar structure) where the ARF investor of a connected person is a participator.

WHAT HAPPENS IN THE EVENT OF MY DEATH?
The tax treatment of an ARF on death will depend on whom the ARF/AMRF assets are passing to.  A spouse can ‘step into the shoes’ of a deceased ARF investor 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 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 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 20%. 

Where the ARF assets pass to anyone other than to a surviving spouse or child an income tax liability will arise the ARF investor in the year of death and the net proceeds passing to the beneficiary will be liable to capital acquisitions tax in the normal manner.

HOW DO I FIND OUT MORE ABOUT THE ITC ARF/AMRF?
Please contact your investment advisor; call us on 01 6611022 or email us