When you retire you are usually given several options for your pension savings. In most cases it involves a tax free lump sum and an option with the remaining balance. This is normally an option to buy a Pension/Annuity for life or alternatively to reinvest the balance into another pension vehicle called an ARF (Approved Retirement Fund) or an AMRF (Approved Minimum Retirement Fund).
A new revenue update carried out in recent months may be very beneficial for anybody who has or will have an AMRF after drawing down their pension benefits. Previously pensioners who held an AMRF could not access their funds before they were 75 or unless they had a guaranteed pension/annuity of €12,700 a year. This created problems for those who were on the full State pension but with no other income as the maximum they receive is €12,651 (€243.50 per week).
As a result of this update, Revenue will now accept the Christmas Bonus payments to those receiving payments from the Department of Social Protection. This means that some people who were originally below the €12,700 annual income threshold are now eligible to deduct more income from their AMRF policy.
AMRF holders currently on the maximum rate of State pension should be able to access their funds in full in December this year after they receive the Christmas bonus on their State pension. Some people may not pay income tax over age 65 if their total income is less than €36,000 (married couple) or €18,000 (single person). A person/couple could use this as a strategic way to drawdown these pension benefits in a tax efficient manner.
Over a period of years, a retiree may be able to completely withdraw their current AMRF tax-free. They could withdraw it faster but might pay some tax on the withdrawals. I would always suggest that the most prudent way of doing this is with the help of a qualified accountant who can help calculate the most tax efficient way for your personal circumstances.
If you feel you may meet the €12,700 income criteria at this time, you can look to attain official documentation to confirm this. Some people do this by contacting the social welfare services office on 1890 500 000 and request a “Statement of Social Welfare Payments”.
What is a Guaranteed Pension/Annuity?
This is effectively a guaranteed Income for life and is taxable as income. The state pension, public service pension and private pensions are the main methods of building up such an income.