Over the years you've saved all this money in a pension fund, what next?
don't you just buy a monthly pension from a life assurance company?
We have a pension system in Ireland which is the envy of the world, where you don't just have to buy a monthly pension, we have another option, we can place our hard earned money into whats called an 'Approved Retirement Fund'
unfortunately it's not as easy as placing all you money in the ARF (Approved Retirement Fund)and that's that. Both the annuity and ARF systems have pros and cons. And before a choice can be made a good understanding of both systems and their pros and cons need to be looked at.
Annuities
An Annuity is a more commonly know as a pension, on retirement the person purchases a guarantee from a life assurance company that a monthly payment will be made by the company to the person for the remained of their life.
When calculating what the monthly figure will be the life assurance company look at:
- the amount in the pension fund
- your age and health status at time of purchase
- the type of pension you require (do you require a dependants pension)
Advantages of pension
- regular income for the remainder of your life
- once initial purchase is made no more investment is required
- Once purchase is made no more advice is required
Disadvantages
- If you die your pension dies with you and all that saving for retirement was for nothing
- Once level of income is set there is no changing it.
Approved Retirement Funds
Is essentially a bank account for your pension fund. Your pension fund is reinvested in assets such as shares, property, bonds and cash. The ARF is designed to continue to grow the value of your pension fund but your original investment is not guaranteed. You can withdraw income as you please, on which you pay tax as normal. Any money left in the fund on retirement can be passed to your next of kin.
Advantages of ARF's
- Keep control of your money
- If you die the ARF can be passed to next of kin
- Any growth in the ARF is tax free
- You can take as much or as little income as you wish (depending on the size of fund)
- The ARF can buy an annuity later on
Disadvantages of ARF's
- Your pension fund is invested. which means it's not guaranteed, (although a risk adverse strategy can be adopted)
- The Fund could run out before you die
- Pay for investment advice
As you can see the advantages and disadvantages for both a numerous. Different strategies suit different people, it's a very important decision to make so when making it take your time, sit down with your advisor and look at all the options available.
If you wish to discuss your options further please call on of the White Star Adviser's on 01 2932373. or have a look at our website at: whitestar.ie
We can help you make the right decision.
