Pensions these days are pretty complicated contracts which simply shouldn’t be pretty complicated contracts. The whole purpose of a pension is to save money over your working lifetime so that you have enough, or at least something, put away to fall back on when income ceases. People are encouraged to save through a pension because the government allow you some tax relief and the pension itself allows the money you put in it to grow tax free making it a pretty attractive way to do things.
Now I could talk about all the different pension contracts that exist and the rules which state the contracts you can use depending on your employment status but this blog is about a particular contract called the Approved Minimum Retirement Fund or AMRF. The AMRF is a post retirement contract that you access after you have taken your pension benefits when you reach D Day. Without complicating this too much, if you decide to not buy a pension but look after your own investing whilst in Retirement then you will still end up with an AMRF, whether you like it or not!
So what is the purpose of an AMRF I hear you ask?
Back quite a while ago people were finding it difficult to put money away over the years to be forced to buy an annuity come retirement. The only option after all those years of saving was to leave your hard earned cash with a Life Assurance company and let them pay you a pension amount each year for as long as you lived. The issue was that as we hit a low interest rate environment the annual pension that your pot of money could secure was ever diminishing. As a solution the Approved Retirement Fund (ARF) was introduced. This allowed you, as an alternative, to manage your own funds and take income as you needed it but the proviso was you must also have an AMRF to the tune of up to £50,000 (€63,500 in modern money) and this pot could not be touched at all until age 75. This was seen to be a fall back fund if you messed up your main fund and spent it all too quickly. Sounds sensible really don’t you think?
The big problem now for a lot of people is that following the most recent crash and recession in 2008 their pension pots are not as large as they would like, so here lies the issue;
You have €100,000 total in your pension fund, once you deduct your tax free cash entitlement of 25% you are left with €75,000. You then have to lock away your €63,500 to age 75 leaving you with access to just €11,500 as your “main” fund. Now recent changes do allow you to take 4% of the AMRF each year but that’s it until age 75. It gets worse if your fund is smaller and quite simply if somebody has a small fund then it is likely that they need the money now, but they can’t have it.
This whole concept is quite outdated, is causing unnecessary stress to a lot of people and in my opinion serves no purpose today…. ABOLISH THE AMRF.
Karl Daly QFA FLIA
Co-Founder and Director
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