Your Pension - Retirement Options

Your Pension - Retirement Options


Should I buy an annuity or invest in an ARF (Approved Retirement Fund) at retirement?


This is the question facing many pension investors as they approach retirement age. The answer will not be the same for all and some people may not have both options available to them.

When you reach retirement you may have a number of options available to you:

  • Buy an annuity

  • Invest in an ARF

  • Take a portion of your fund, typically 25%, as tax free cash

  • Take your entire fund as taxable cash

  • Chose a combination of the above

Let’s look at what ARF’s and Annuity are:

In simple terms an annuity is an income for life. You pay an insurance company a lump sum from your pension pot and in exchange they will pay you a regular income for the rest of your days. It is also possible to provide for an income for a spouse. An annuity does not provide for any residual amount to be left to your estate, it simply dies with you. The key advantage is that you are guaranteed a set income for life. On the flip side, once you buy an annuity you are locked in for life, it cannot be cashed in or revised.


ARF and AMARF are pension structures which allow you to keep your pension fund invested post retirement. You may also draw a regular taxable income from your ARF. This will be at a minimum of 5% per year but may be more if you choose. You must leave €63,500 in an AMRF up to age 75. However, you may withdraw any surpluses generated from your investments. The key advantage to an ARF is that you can keep control of your investments and potentially pass money on to the next generation. On the flip side there is always the potential of “bomb out” where your ARF is exhausted before you retire leaving you without an income.


Income distributed from your pension is subject to tax in the normal way. Not all employer schemes have an ARF option so it is important to understand your options well in advance of your planned retirement.


With regard to taking a tax free lump sum, generally you can take up to 25% of your accumulated pension fund as tax free cash. This is subject to a maximum of €200,000. The next €375,000, so up to €575,000 can be taken subject to tax at 20%. Anything above this would be subject to taxation under the PAYE system. There are certain limitations to taking tax free cash and certain employer pension schemes may vary.


What’s right for you will depend on several factors such as:

Have you other income?

How is your health?

Are you only interested in having a secure and steady income in retirement?

Do you want to pass some of you pension pot on to the next generation?

How much have you accumulated in your pension pot?


The retirement discussion is often framed as ARF V Annuity, however, your final decision may well be to employ a combination of both.