ARF or Annuity – are you trying to decide? The right choice depends on a lot of factors and will be specific to your personal circumstances.

Are you at or approaching retirement and looking to assess your options? Luckily, we have guided countless clients through retirement and have seen all different types of scenarios.

We are living longer, healthier lives than ever before. However, this also means you will likely have 20+ years of retirement to plan for financially.

Deciding on an ARF or Annuity will have a significant impact on your retirement. Both will have their advantages and disadvantages. An ARF will allow you access to your funds but pose the risk of a your fund running dry.

An Annuity will have restrictions but give you peace of mind and stability. Look at both in detail before making a decision.

Discuss Your Pension Options

Questions to ask yourself before choosing an ARF or Annuity

Ensuring a long-term retirement income is the goal for most of us. Both an ARF and Annuity have the ability to provide this although in slightly different ways. Below are some questions to consider:

1. What is the overall value of your pension pot at retirement?

The overall value of your fund will have a dramatic impact on your decision. The amount in your fund will affect your long-term planning and potential investments. An investment strategy will not be relevant should you choose an annuity.

2. Do you have any other sources of income?

We know the State pension is only worth €12,700 per annum or €35 per day. Therefore, ideally, you would have another source of income at retirement.  Whether that be a private pension or an income from property or investments. Either way, this will impact your decision-making process.

3. How long will my pension last in retirement?

We know first-hand from our own surveys that we dramatically underestimate how much we will need in retirement. There is no universal answer so it is worth chatting to your advisor. 

4. How much income will I need to enjoy my retirement?

As we said, we are living longer than ever before. This means we have many extra years to enjoy in retirement. 

This means you may finally have the time to get around to some of those bucket list items. Perhaps you may want to start a new hobby or help out some family members financially. 

Each option will have its advantages and disadvantages. The important thing is that you take time to assess your options and speak with a qualified professional who can weigh up the pros and cons of each option.

This blog aims to help you understand what each option entails and give you more information about each one.

There is no one-size-fits-all approach when it comes to pensions. There will be variables at play and our circumstances will be different.

What is an ARF?

An ARF is a personal tax-efficient investment fund into which you can transfer all or part of the balance of your pension benefits after you have taken your retirement lump sum.

Investing in an ARF will give you full control over your fund.

An ARF will be available to the following people:

  • Members of an Occupational Pension Scheme (dependent on scheme rules)
  • Holders of a Personal Pension
  • Holders of a PRSA
  • Holders of a PRB who have reached retirement age or have taken early retirement.

You will also have to meet conditions surrounding an AMRF before accessing your ARF.

Advantages of Choosing an ARF

Choosing to go down the ARF route will have several advantages such as:

  1. You will have flexibility and control over your post-retirement fund.
  2. You will have the ability to invest your ARF in a wide range of asset classes.
  3. Investing in such assets will give your fund the opportunity to grow.
  4. You can choose the level of income you would like to take from your ARF each year. However, imputed distribution will apply.
  5. On death, your ARF can pass tax-free to your spouse/civil partner. It can also pass to your estate under inheritance rules.
  6. The ability to alter your decision. Further down the road, you can decide to go with the annuity option.

Disadvantages of Choosing an ARF

As with anything in life, there are both advantages and disadvantages. Deciding whether to buy an ARF is no different. Some of the disadvantages may include:

  1. The ‘bomb out’ risk. As you have access to your ARF, there is the possibility your fund may run out eventually. This could be due to various factors such as
  • Poor investment performance
  • Increased/regular withdrawals
  • Living longer than expected
  1. Exposure to investment risk. Your ARF may fall in value as well as rise. This is why a regular pension review is important.
  2. Between age 61-70 you must withdraw a minimum of 4% of your total fund each year. This may be a disadvantage if you do not require that income.
  3. If you are under the age of 75 and do not have a guaranteed income of €12,700 annually, you must first ring-fence €63,500 into an AMRF.

It is also worth noting that in the year the policyholder turns 61, it is compulsory to withdraw a minimum of 4% of the fund value.

This will increase to 5% from the year you turn 71. If your ARF fund value is greater than €2,000,000 then the minimum withdrawal is 6%.

What is an Annuity?

When you retire, you may have the option to purchase a lifetime pension known as an annuity. This is where a life insurance company will offer you a fixed amount until death in return for your pension benefits.

Types of Annuities

This will provide you with a guaranteed income for the rest of your life. This option is suitable for those who have a low appetite for risk.

When discussing annuities you may hear the following terms thrown around:

  • Single- life annuity
  • Joint-life annuity
  • Enhanced annuity
  • Indexed annuity

Single-Life Annuity

This is payable only during the life of the annuitant and ceases on their death. However, in some cases, we may have a guaranteed period in place for up to 10 years.

In this case, should the annuitant die before the expiry period, the benefits will be paid to their representatives.

Joint-Life Annuity

This pension option is payable for the life of the annuitant and on their death continues to be payable for the life of a spouse/dependant.

You may have the option of choosing 100% payment or potentially a lower percentage.

Enhanced Annuity

This option operates the same as a standard annuity but it will take an individual’s health into account.

Smoking and other health issues will be factors. An individual with an enhanced annuity may be entitled to a higher regular income.

Indexed Annuity

An indexed annuity can be inflation-protected. However, the amount payable initially is often lower.

This is due to the fact this annuity option will gradually increase each year. Many insurers will offer indexation rates of between 2-5%.

Advantages of Choosing an Annuity

Choosing an annuity will allow you stability and suit those with a lesser appetite for risk. Some of the advantages will be:

  1. You will have a guaranteed income for life.
  2. You may have the option of choosing between different types of annuities. An indexed annuity will help you fight off inflation eating into your retirement fund.
  3.  Depending on the option you choose, your spouse may also be entitled to benefits as per above.
  4. There is no investment risk associated with this choice.
  5. Annuities are not as complex as other products. 
  6. An annuity will provide you with peace of mind.

Disadvantages of Choosing an Annuity

As with any decision, it is important to try and take an objective view of the situation. Some of the disadvantages of choosing an annuity are:

  1. A fixed annuity rate at the time of purchase. Should your life expectancy or other aspects change the annuity rate will remain the same.
  2. You will have traded your pension pot for a fixed income.
  3. Your pension will cease at your death. Unless you have chosen a specific annuity option your benefits will stop when you die.
  4. If you do choose additional options these will likely add cost and reduce the payable income.

A Comparison Guide to ARFs vs Annuities

Below we look at some of the other important factors to consider. It will also illustrate how we can compare ARFs and annuities. 


Feature Annuity  Approved Retirement Fund (ARF)
Taxation Any income from your annuity is subject to income tax and you may be liable to USC. Any income you withdraw from your ARF is treated as income and tax under the PAYE system. You are liable to income tax, PRSI & USC.
Change Your Mind It will depend on the specific arrangement but many offer 30 days to change your mind. You have the option to use the funds in your ARF to purchase an annuity at any time.
Income For Life Your annuity will provide you with a guaranteed income for the rest of your life. There are no guarantees with regard to the funds in your ARF. There is a risk they may run out at some point.
Early Death If a single-life annuity, it will stop on your death. Any funds in your ARF may be passed to your estate. Tax will depend on who is inheriting the funds.
Flexibility None. You cannot make changes to your annual income once the annuity is purchased. You will have the flexibility to withdraw as much as you wish (allow for imputed distribution)
Lump-Sum Withdrawals You will not be able to make any lump sum withdrawals after purchasing an annuity. An ARF will allow you to access your funds as you please.

Anything else I should consider?

As we always say, there is no one-size-fits-all answer when it comes to pensions. There is no standardized approach or uniform answer.

This blog aims to highlight some of the aspects you should consider before making a decision.

However, you will not know until you speak with someone experienced in this area.

Our team takes a non-jargon approach and would be happy to answer any questions you may have.

You can give us a call and have a chat about potential options. 

Or, you can organise your complimentary consultation below.

We hope reading this provides you with more clarity and you are in a better position to assess your options.

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Pension Support Line Team

Phone – 01 8903518


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*This blog should be used for information only and not taken as financial advice.

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