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ARF Distribution and Annuities – What Are Your Options?

When our clients decide to drawdown benefits from pre-retirement pension schemes, they will in general have the option to buy a lifetime annuity, effect an Approved Retirement Fund (ARF), or encash all pension benefits after paying marginal rate of tax. These options of course apply to the benefits left after the client has taken their allowable tax-free lump sum.

But how do you ensure that your financial needs on retirement are met?

The benefit of the Annuity option is that it will pay a guaranteed income for a minimum period of 5 years, after which, if for example the single level no guaranteed annuity is selected, it will cease to be paid on death.

If we were to take Irish Life as an example, they outline that the life expectancy of a 60-year-old male is 29.8 years, and a 60-year-old female is 31.1 years. As long-term interest rates are at historically low levels, there could be a significant length of time for annuity recipients to receive an income below average levels of inflation, never mind the extremely high 6.7% level at the moment. A Single Life Irish Life Annuity, for example, for a 60-year-old male will pay a 3.19% rate, whilst a Joint Life Irish Life Annuity for a 60-year-old male, and 60-year-old female will pay a rate of 2.87%.

If the ARF option is chosen, you could, with advice from your financial advisor, decide to invest in funds that closely align with your risk profile, and these funds can consist of assets such as property, fixed income, cash and equities in general. Returns will vary from negative to positive over time.

An alternative and attractive option to the annuity could be to invest in a self-administered ARF and buy property.

We are all aware of the lack of supply of property at the moment, but what this is doing is driving up rental yields (average of 6.7% increase year on year countrywide) as well as property prices. The number of homes to rent is at its lowest level for 16 years. The number of homes to rent according to on 1/11/21 was 1,460.

Below are some examples of average yields countrywide from a recent rental yield report;

Property provides a double benefit of rent and capital appreciation. It is not guaranteed, but with rental rates across the country very attractive at the moment, it can be an ideal investment vehicle to provide income distribution through your self-administered ARF.

For further information please speak to your Financial Advisor or email Visit to learn more about pension property rules, the advantages of investing in property through your pension and view available properties.

Stephen Dooley
ITC Business Development Manager

The Rental Price Report, Q4 2021
LIA The Advantage Factsheet, February 2022

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