I am advised by the Revenue Commissioners that section 784C of the Taxes Consolidation Act 1997 relates to Approved Minimum Retirement Funds (AMRFs) which form part of the Approved Retirement Fund (ARF) options introduced by Finance Act 1999. ARFs and ARMFs are not pension schemes per se but rather investment funds into which the proceeds of certain pension arrangements can be invested on retirement. At present, the ARF option is primarily available to personal pension holders (i.e. mainly the self-employed with Retirement Annuity Contracts or PRSAs), employees who have made AVC contributions (in respect of those contributions) and proprietary directors (i.e. 5% directors) who are members of occupational pension schemes.
In order to exercise the ARF option an individual must either be over 75 years of age or have, in his or her own right, a guaranteed pension income for life of a minimum of €12,700 per annum at the point of retirement (this is referred to as specified income in the relevant legislation). In this regard, the pension or pensions must actually be in payment – pensions anticipated at some time in the future cannot be brought into the reckoning. Pensions paid directly to a spouse or pensions/allowances received on behalf of a spouse or dependant may not be included. Where the minimum specified income test is not met, the legislation requires that the first €63,500 of the pension fund (after taking the tax free lump sum), or the entire of the remaining fund, if it is less than this, must either be used to purchase an annuity for the individual or invested in an AMRF. The individual can also satisfy this requirement by using part of the €63,500 to purchase an annuity and by placing the rest in an AMRF.
The purpose of the AMRF is essentially prudential with a view to preserving at least some of the pension assets over the longer term for the individual to guard against the possibility that the ARF would be depleted earlier than expected. To that end, the capital sum invested in an AMRF is "locked away" and is not available to the individual until he or she attains the age of 75, although any income or gains generated by the fund can be drawn down subject to income tax. However, an individual may use the AMRF funds at any time to purchase an annuity. When an individual attains the age of 75 the AMRF automatically becomes an ARF.
Section 784C(4)(a) simply states that, where the individual is in receipt of pension income for life of €12,700 at the time the ARF option is exercised, the AMRF requirement does not arise. The specified income amount of €12,700 (originally £10,000) has been in place since the ARF legislation was enacted in 1999 and is not directly linked to the maximum personal rate of the contributory State pension (for person under 80) – which stood at €5,876 (£4,628) at that time and currently stands at just short of €12,000 annually.