ARFs and Annuities

The months before you retire are a busy time as you make important plans on your financial future.

Two of the most important factors you should consider are the way in which you wish to use your pension fund to provide an income in retirement and whether you wish to pass the balance of your fund to your dependents after your death.

ARFs Annuities

Most people will choose to take the very attractive tax-free lump sum option of up to €200,000 from their pension fund (subject to Revenue rules) and then use the balance to meet their financial needs in retirement through one of three further retirement options:

  • Purchasing a Pension (also known as an Annuity),
  • Investing in an Approved Retirement Fund (ARF) or,
  • Taking a taxable lump sum,

The retirement option that is right for you will depend on many factors, including:

  • The size of your retirement fund;
  • The level of income you and your spouse/civil partner/dependent will need during your retirement years; 
  • The amount of other assets - apart from your retirement fund - that you have to fall back on; 
  • Whether investment growth or security is more important to you during your retirement years; 
  • Whether you wish to pass your retirement fund on to your dependents; and 
  • Your current state of health.


Purchasing a Pension can provide you with security of income during your retirement years. For many people this retirement option is very attractive, in particular when:

  • Your retirement fund will be your main source of income in retirement.
  • Your main priority in retirement is a secure regular income rather than accumulating assets to pass on to your dependants.


An ARF is an investment plan that allows you to retain control of your retirement fund throughout your retirement years and enables you to pass on the remaining value of your fund to your dependents when you die.

You can choose how to invest your ARF, giving you the opportunity to continue to manage your own fund and select from a wide range of different investment options to suit your requirements in retirement and attitude to risk.

Some of the key features of an ARF are:

  • You can make withdrawals, as and when you require.
  • Your ARF invests in funds that currently benefit from tax-free growth.
  • You can manage and control your retirement fund.
  • You can invest in a range of different investment funds.  
  • You can set up an ARF to pay you a regular income.
  • You can pass it onto your dependents. 


After you take your tax-free lump sum, you may be able to take the rest of your fund as a cash lump sum. You will need to pay income tax at the marginal rate and Universal Social Charge (USC) under the PAYE system on this lump sum.


*In order to invest in an ARF or take a Taxable Lump Sum, you must have a guaranteed income for life from all sources of currently €12,700 per annum in payment at the time the ARF begins. This can include your State pension benefits (single person rates only), a Pension from a company pension plan or a Pension bought with the proceeds of another pension plan.

If you do not have this minimum pension income then you must either:

  1. a) use all or part of your retirement fund to purchase a Pension (annuity) to bring your pension income up to €12,700, or
  2. b) use an amount equal to €63,500 of your retirement fund to invest in either an AMRF, purchase a Pension or a combination of both. If your retirement fund is less than €63,500, then the whole amount must be used in this way.