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Consumer Question:
I’m due to retire next year at the age of 60. I’m currently in a company pension scheme and my pension fund is expected to be worth €600,000 when I retire. I’m considering taking €150,000 of this in a tax-free lump sum and investing the rest in an Approved Retirement Fund (ARF). When I come to withdraw money from the ARF, will I have to pay tax on it or is it tax free?
Answer from Mark Reilly, Pension Proposition Lead at Royal London Ireland
When you invest a sum of money in an ARF on retirement, once you are aged 60 or over for a full tax year, you'll have to drawdown at least 4% from it each year. In your case, assuming you invest €450,000 of your pension fund into an ARF, this could work out at around €18,000 a year. Withdrawals from an ARF are treated as income and taxed under the Pay As You Earn (PAYE) system. The amount of tax you must pay on your annual ARF drawdowns will depend on a number of things, including what other sources of income you have and whether or not you are jointly assessed for income tax purposes with your spouse, if applicable.
Under current Irish Revenue rules, a maximum of €200,000 can be taken as a tax-free pension lump sum over your lifetime. You’ll have to pay tax on any amount drawn down over the €200,000 limit. There is a flat rate charge of 20% on any amount that falls between €200,000 and €500,000. Whether you can take all of the €150,000 as a tax-free amount will depend on whether you have previously taken any other lump sum amounts that now move you above the €200,000 lifetime limit.
We recommend that you talk to a Financial Broker for independent financial and tax advice before making any decision around your pension fund.
ENDS
This question was submitted to and first published by The Sunday Independent
About Royal London Ireland
Royal London Ireland has a history of protecting its policyholders and their families in Ireland, and recently launched a new Pensions business in Ireland. Our business heritage in Ireland is nearly 200 years. The Caledonian Insurance Company's first office outside Edinburgh opened on Dame Street, Dublin 2 in 1824.
Today, Royal London Ireland is owned by The Royal London Mutual Insurance Society Limited – the largest mutual life insurance, pensions, and investment company in the UK, and in the top 25 mutuals globally, with assets under management of €178 billion, 8.6 million policies in force, and 4,100 employees. Figures quoted are as at 30 June 2023.
Royal London Ireland’s office is based at 47-49 St Stephen’s Green, Dublin 2.