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Retirement Fund Options
Once you have accumulated your retirement fund, you have done the hard part. Planning what to do with the capital is the enjoyable end result of your years of saving. However, you have options that need to be considered carefully.
Assuming you have withdrawn your tax-free lump sum, the remaining retirement fund can be invested in two areas which are discussed below. These areas would need to be explored at retirement to ensure the right decision is made;
Annuities
These products have been available for quite some time and until recently, were the only product available to maturing pension funds. They work on a simple basis in that the annuity company offers you a guaranteed return on your capital for the remainder of your life. In return for this guarantee you surrender your capital, which is never returned.
The annuity can be quite comprehensive offering annual increases to combat inflation, a spouse’s pension in the event of a death in retirement and a guaranteed period of payment, should death occur in the early years of retirement. The amount you are offered will depend on your age, gender, health status and the additional options you might wish to add.
Most pensions come with what is called an “open-market option” allowing you to shop around for the best annuity available to you – through our association with the product providers we can do this shopping around for you at no extra cost.
Approved Retirement Funds (ARF’s/AMRF’s)
These products were introduced in 1999 and offer an alternative to the annuity. The concept behind the ARF is that an individual can elect to maintain his/her retirement fund as a cash investment, and withdraw both the investment gain and capital each year to provide income during their retirement.
These are currently only available to maturing Personal Pension plans, PRSA’s and AVC’s, along with Occupational Pension Schemes for Directors who control at least 5% of their company.
Current legislation allows you to select from a wide range of investment options, including stock and share based investments, which do carry the associated risks, however, the main attraction apart from the control is that on death, the capital remaining is passed on to the surviving spouse or to your estate for distribution in accordance with your will.
ARF’s ensure that you retain control over your capital, but with it comes the responsibility of ensuring that the returns generated are sufficient to provide both an income and maintain the value of the original investment. At Steadfast we can help you plan correctly for both.
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