PERSONAL FINANCE:Your queries answered
Q
If I were to buy a bond for €100,000 and leave it for 10 years, would I have to pay Dirt on the interest if I was 67 when the bond matured?
– Mr P E, EMAIL
A
It’s a nice idea. However, as you might expect, the Revenue has arranged that Deposit Interest Retention Tax (Dirt) will be deducted from your account at the prevailing rate – currently 25 per cent – “from time to time in accordance with Irish law”. Bear in mind that interest on this account is just 1 per cent per annum. The rest of the gain – 47.5 per cent after tax at the end of the 10 years – comes from bonuses which are tax-free.
Of course, when you reach 65, you will be exempt from Dirt, provided your income is below the necessary exemption limit.
ZURICH WON’T LET ME CASH IN MY PENSION POT
Q
I recently cancelled my annuity contract with (Zurich) within 30 days in the hope of cashing in the remaining funds of my Personal Retirement Savings Account (PRSA) AVC, less tax.
However, Zurich informs me that Revenue legislation does not allow me to commute the residential funds of the policy as I am not currently in receipt of a guaranteed lifetime pension income in excess of €12,700. All the more reason I would think! Or am I being protected against myself here (and against my own wishes)? Zurich currently pays me the (vast) monthly sum of €43.82, which is a waste of paper and people in my view. I would like the remaining money paid out to me so that I can buy a polytunnel and grow my own food, worth more than €40 a month. Please advise.
– Mr E S, MEATH
A
I don’t have the full details of your case but the reaction of Zurich does give some clue to the position. In general, when you have a personal pension plan, on retirement you can take a lump sum and either purchase an annuity contract or transfer the money to an Approved Retirement Fund (ARF). The latter option provides more flexibility but less security.
However, in order to avail of an ARF, a person needs to have guaranteed income in retirement of €12,700 per annum – including the State pension – or a pension pot of more than €63,500. The thinking is that, for people with income below that level, the security of a guaranteed income via an annuity contract is a preferable option. Essentially, they want to ensure that your money does not run out.
The alternative is an Approved Minimum Retirement Fund (AMRF). This operates on the same general investment principles as an ARF but the key difference is that you are not allowed to access the money. This is why Zurich has told you that it is not in a position to return your retirement pot to you in cash. It is obliged either to put it into an AMRF or continue with the annuity contract – derisory as the income is – because at least it is guaranteed. An AMRF remains in place until you reach 75.
At that stage, you are allowed draw down the money as you please. In the interim, you can access interest that accrues on your AMRF on an annual basis but not the capital itself.
This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com
