In 2011, the government increased the “imputed or notional distribution of assets” to 5%. This is the amount Revenue assumes a person will draw down from his/her Approved Retirement Fund (ARF) each year, and it is the amount which is taxed each year, regardless of whether or not it is taken from the fund. For this reason most individuals felt forced, from a tax perspective, to draw up to the deemed limit. Taxation at 5% also meant that the fund would be fully exhausted within 20 years.
The Finance Bill 2014 reduces the notional distribution amount from 5% to 4% per annum where an individual is aged between 60 and 70 and has a fund value of €2 million or less. The reduction, although limited, reduces the tax motivation to draw a 5% income and, as a result, reduces the risk that the value of ARF funds would be drawn down too quickly in retirement. An ARF will now last for up to 25 years after retirement. No withdrawals are required up to age 60. The imputed distribution remains at 5% where the ARF owner is aged 70 years or over and at 6% where the value of the assets is greater than €2 million.
The Approved Minimum Retirement Fund (AMRF) regime has also been amended, with the introduction of an ability to draw 4% of the AMRF fund value as income year-on-year where the owner of the AMRF is aged between 60 and 70 years and the aggregate value of the assets is greater than €2 million. This is of particular assistance to individuals with lower pension fund values at the point of retirement.
The effective date for these Finance Bill changes is 1 January 2015.