Reviewed by the advisory team at Greenway Financial Advisors Ltd. · Dublin · Updated August 2026
You spend forty years putting money into a pension. Then, somewhere around your mid-sixties, you get about six weeks to make a decision you cannot undo.
That decision is what to do with the pot once the tax-free lump sum is taken. In Ireland it usually comes down to two choices: an Approved Retirement Fund, normally shortened to an ARF, or an annuity. One keeps your money invested and lets you draw from it. The other hands your money to a life company, which pays you a guaranteed income until you die.
This guide explains both in plain English, using real annuity quotations obtained on 31 August 2026, and sets out how we would approach the decision. It is general information for the 2026 tax year, not personal advice.
The short answer
For most people, the best answer is not one or the other. It is both.
Work out what you must spend every month for the rest of your life — food, heat, insurance, property tax, the basics that do not stop. Cover that with guaranteed income you cannot outlive: your State Pension first, and, if there is still a gap, an annuity bought with part of your pension fund. Then put the balance into an Approved Retirement Fund, where it stays invested, stays yours, and passes to your family when you die.
That approach gives you the one thing an Approved Retirement Fund cannot give you — certainty about the floor — without giving up the one thing an annuity cannot give you, which is control of your capital and something to leave behind.
It is not the right answer for everyone, and the rest of this guide sets out honestly where it breaks down. But if you want the headline: buy certainty for the essentials, invest the rest.
A note on timing. Annuity rates in 2026 are the highest they have been in well over a decade. Someone retiring in 2020 was offered less than 3% on the same money. That does not automatically make an annuity the right answer — but it does mean advice you were given, or read, five years ago is out of date.
What an Approved Retirement Fund actually is
An Approved Retirement Fund is a pot of money in your name, still invested in funds, from which you take withdrawals. Revenue describes it as a post-retirement investment vehicle. The important part, in Revenue’s own words, is that “the funds in the ARF remain the property of the individual who is the beneficial owner and may be withdrawn at any time”.
So it is your money. You choose how it is invested. You choose how much to take out and when, subject to a minimum we explain below. Whatever is left when you die passes on.
The fund must be managed by what Revenue calls a Qualifying Fund Manager — in practice a life company, bank, stockbroker or similar. That firm is responsible for deducting the tax on everything you withdraw.
While the money sits inside the Approved Retirement Fund, it grows without tax: “income and gains of ARF funds are exempt from tax while retained in the ARF”. Tax only applies when you take money out.
The catch nobody explains properly
An Approved Retirement Fund carries two risks that an annuity does not.
The first is investment risk. Markets fall. If they fall badly in your first few years of retirement while you are also drawing an income, the fund may never recover — you are selling units at low prices to pay yourself, which locks the loss in.
The second is longevity risk, which is a polite way of saying you might live longer than your money. Nothing stops an Approved Retirement Fund running out. If it does, you are left with the State Pension and whatever else you have.
What an annuity actually is
An annuity is a trade. You hand over a lump sum from your pension fund and a life company promises to pay you a set income for the rest of your life, however long that turns out to be. The Pensions Authority defines it simply as “a series of pension payments, normally monthly, until a particular event occurs”.
The income does not depend on markets. It does not stop if you live to 100. It arrives whether the world economy is booming or in pieces.
In exchange, you give up the capital permanently. One quotation we obtained puts it flatly: the annuity “has no cash-in value at any time, and once the annuity has been set up and the 30 day cooling-off period has expired, it cannot be altered or transferred”. If you die two years in with no other options attached, the balance is gone.
The options you can add — and what each one costs
An annuity is not a single product. You build it, and every feature you add reduces the income:
- A spouse’s or partner’s pension. When you die, a percentage of your income — usually 50% or 100% — continues to them for the rest of their life.
- A guaranteed period. The income is paid for a minimum number of years even if you die first. Revenue permits a guarantee of up to 10 years.
- Escalation. The payment rises by a set percentage each year, so inflation does less damage.
- An enhanced rate. If you smoke or have a health condition that shortens life expectancy, some companies will pay you more. Always disclose it — honesty is worth money here.
Real annuity rates, August 2026
Published annuity rates are almost impossible to find in Ireland, and most articles you will read quote figures that are two or three years out of date. So we obtained live quotations on 31 August 2026 for a 66-year-old, from one of the life companies whose annuities we can access.
These are real quotations, not illustrations. They are also a snapshot: the quotes were guaranteed for 14 days and will be different by the time you read this.
| What was bought | Amount | Rate | Income a year |
| Own life only, level payments, no guarantee | €200,000 | 6.180% | €12,360 |
| Own life only, level payments, no guarantee | €400,000 | 6.199% | €24,794 |
| Plus 50% to a surviving partner for life | €200,000 | 5.694% | €11,387 |
| Plus 50% to a surviving partner for life | €400,000 | 5.711% | €22,843 |
| Plus 50% to a partner, 2% yearly increases, 3-year guarantee | €400,000 | 4.525% | €18,101 |
Quotations obtained 31 August 2026 for a person aged 66, payable monthly in arrears. Rates change constantly and vary between companies. Your own quotation will differ.
What those numbers tell you
Adding a partner’s pension costs about 8% of your income. On €400,000, going from €24,794 to €22,843 costs €1,951 a year. In return, if you die first, your partner receives half your pension — €11,421 a year — for the rest of their life. For most couples that is one of the better-value decisions on the page, and it is the one people most often skip because they are focused on the headline number.
Inflation protection is expensive. Adding 2% yearly increases and a three-year guarantee took the same €400,000 from €22,843 down to €18,101 — a cut of €4,742, or nearly 21%. Note two things changed at once there, so not all of that is the escalation.
Is it worth it? Run the arithmetic on those two quotes. The escalating income only overtakes the level income in its thirteenth year, when you are about 78. The total euros you have received do not catch up until you are about 89. If you live well into your nineties, escalation wins comfortably. If you do not, it does not.
Bigger pots get marginally better rates. €400,000 bought 6.199% where €200,000 bought 6.180%. Real, but small — do not make the decision on that.
One thing worth checking on any quotation you are given. The purchase price includes all charges, expenses and any commission paid to the broker arranging it, and the quotation must show that figure. It is on the same page as the rate. Ask about it if you cannot see it.
The comparison that actually matters
Here is the honest version, using the same €400,000 and the same 66-year-old.
The annuity pays €24,794 a year, guaranteed, for life. It never falls. It never runs out. When you die, it stops, and the €400,000 is gone.
The Approved Retirement Fund must pay out at least 4% a year once you reach the relevant age — that is €16,000 — and you can take more. But to match the annuity’s €24,794 you would have to withdraw 6.2% of the fund every year, and the investments would have to earn 6.2% after charges, every single year, just to stop the pot shrinking. Over a thirty-year retirement, that is a demanding target.
So the trade is stark, and it is worth sitting with: the annuity almost certainly pays you more income than you could safely take from the same money in an Approved Retirement Fund. What you buy with the Approved Retirement Fund is not more income. It is control, flexibility, and an inheritance.
Anyone who tells you the Approved Retirement Fund is simply “better” has not looked at a 2026 annuity quotation.
| Approved Retirement Fund | Annuity | |
| Income | You choose, above the minimum. Can rise or fall. | Fixed at the start. Guaranteed for life. |
| Can it run out? | Yes. | No. |
| Who takes the investment risk | You do. | The life company does. |
| Access to the capital | Full access at any time. | None. Cannot be cashed in or reversed. |
| What your family gets | Whatever is left in the fund. | Only what you paid for — a partner’s pension or guarantee period. |
| Keeping pace with prices | Possible, if investments perform. | Only if you pay for escalation. |
| Ongoing decisions | Reviews, fund choices, drawdown levels. | None. It simply pays. |
What happens when you die
This is the single biggest difference between the two, and for many families it decides the question.
With an annuity, payments stop on your death unless you bought a partner’s pension or a guaranteed period. There is no fund left to pass on.
With an Approved Retirement Fund, whatever remains is dealt with as follows.
| Who inherits | Income tax | Inheritance tax |
| Your spouse or civil partner | No | No |
| A child under 21 | No | Yes |
| A child aged 21 or over | Yes — 30% | No |
| Anyone else | Yes | Yes |
The spouse position is the generous one: the fund transfers into an Approved Retirement Fund in their name and no tax arises at that point. They then draw from it under the same rules, and it is taxed as their income when they do.
For a child aged 21 or over, Revenue applies a flat 30% income tax charge, which it treats as a final liability — there is no inheritance tax on top. For a child under 21 it is the reverse: no income tax, but the value counts against their inheritance tax threshold. Those thresholds are €400,000 from a parent, with tax at 33% above it.
Put simply: an Approved Retirement Fund is one of the more tax-efficient things you can leave to a spouse, and a reasonably efficient thing to leave to adult children. An annuity leaves nothing. If passing money on matters to you, that belongs at the centre of this decision, not the edge of it.
The minimum you must withdraw
You cannot leave an Approved Retirement Fund untouched forever. Revenue applies what it calls an imputed distribution — a minimum amount treated as withdrawn each year whether you take it or not, with tax deducted accordingly.
The percentages for 2026:
- 4% a year, from the year in which you turn 61. Revenue’s test is being aged 60 for the whole of the tax year, which in practice means the year you turn 61.
- 5% a year from the year in which you turn 71.
- 6% a year if the total value of your funds is more than €2 million — and that applies to the whole fund, not just the part above €2 million.
The value is measured on 30 November each year, across all your Approved Retirement Funds and vested Personal Retirement Savings Accounts (PRSAs) added together. Anything you have already withdrawn during the year counts towards the minimum, so if you are drawing a regular income above 4% the rule never bites.
Do not confuse the two €2 million figures. The 6% imputed distribution threshold is €2 million. The Standard Fund Threshold — the maximum tax-relieved pension fund — is €2.2 million for 2026, rising by €200,000 a year to €2.8 million in 2029. They are different rules with different numbers, and they are very commonly mixed up.
How each one is taxed
The tax treatment is closer than most people expect, and it is not a reason to choose one over the other.
Both are taxed as income under the PAYE system. Income tax at 20% up to €44,000 for a single person in 2026, 40% above that. Universal Social Charge (USC) applies as well, and Pay Related Social Insurance (PRSI) can apply depending on your age and circumstances.
Two points that are genuinely worth knowing:
Universal Social Charge gets cheaper at 70. From age 70, if your income is €60,000 or less, reduced rates apply: 0.5% on the first €12,012 and 2% on the balance, instead of the standard bands that run up to 8%. For someone drawing a moderate retirement income, that is a real saving and it is worth factoring into when you draw what.
Pay Related Social Insurance no longer simply stops at 66. If you were born on or after 1 January 1958 and you defer claiming your State Pension, you can remain liable for Pay Related Social Insurance up to age 70. If you are planning to defer the State Pension and live off pension drawdowns in the meantime, model that cost — it is a change many people, and a fair amount of older advice online, have not caught up with.
Do you even have the choice?
Not everyone does. Before weighing up the merits, find out which door is actually open to you.
You generally have the choice if you are a member of a defined contribution occupational scheme, hold a Personal Retirement Savings Account, hold a personal pension set up after 6 April 1999, or are a proprietary director in a defined benefit scheme.
You generally do not if you are an ordinary member of a defined benefit scheme. Those schemes pay a pension — that is the whole design. The Approved Retirement Fund option is available only for benefits arising from your Additional Voluntary Contributions (AVCs).
Check carefully if you hold an older personal pension or a buy-out bond. Personal pension contracts set up on or before 6 April 1999 sit outside the Approved Retirement Fund rules. A buy-out bond holds benefits under the rules of the scheme you originally left, and those rules travel with the money — so the options available to you depend on that scheme, not on the bond itself. Get the position confirmed in writing by the provider before you plan around it. This is the single most common place we see people plan on an assumption that turns out to be wrong.
If you have old pensions from previous jobs and are not sure what you are holding, our guide to transferring and consolidating old pensions in Ireland is the place to start.
The lump sum decision comes first
Before either option, you take your retirement lump sum. For 2026 the first €200,000 is tax-free — a lifetime limit across all pensions. Between €200,001 and €500,000 tax applies at the standard rate of 20%. Above €500,000 it is taxed at your marginal rate under PAYE.
Occupational scheme members often have a choice between taking 25% of the fund or a figure based on salary and service, which can reach one and a half times final salary. These are not interchangeable, and they interact with what follows: if you take the Approved Retirement Fund route, Revenue caps the lump sum at 25% of the fund value. Which of the two leaves you better off depends on your salary, your service and the size of your fund — it needs to be calculated, not assumed.
Two things you may still read that are no longer true
“You need €12,700 of guaranteed income, or you must lock €63,500 away.” This was the Approved Minimum Retirement Fund rule, and it is gone. Finance Act 2021 removed the specified income requirement, and every existing Approved Minimum Retirement Fund automatically became an ordinary Approved Retirement Fund on 1 January 2022. You will still find this rule stated as current on websites that ought to know better, including official ones. It has not applied for over four years.
“Your Personal Retirement Savings Account locks at 75.” This used to be true, and in a hard way. Until the end of 2023 Revenue’s position was that someone who reached 75 without taking benefits “cannot access the PRSA assets in any form” from their 75th birthday. Finance (No. 2) Act 2023 removed that upper age limit, and Revenue now says the holder “maintains full access to their fund after age 75 years”.
Our advice is still to take your benefits before 75 — not because you are forced to any more, but because doing it yourself is the only way to keep control of the decision.
Leave it, and the choice gets made for you on your 75th birthday. The Personal Retirement Savings Account vests automatically, the imputed distribution starts applying, and Revenue describes drawdowns after that point simply as emoluments taxed at your marginal rate. The 25% tax-free retirement lump sum can only be taken on the first occasion benefits are taken, and Revenue nowhere confirms that it survives an automatic vesting — so the most valuable single part of the decision becomes the part you are gambling on.
Act before 75 and none of that is in doubt. You pick the timing, you secure the lump sum, and you choose what happens to the rest. Advice written before 2024 gets the old lock wrong — but advice telling you that 75 no longer matters at all is wrong too.
So which should you choose?
Our recommendation is the blended approach set out at the top: guarantee the essentials, invest the rest. Here is the fair analysis behind it, including where each of the alternatives is the better call.
The blend — our usual recommendation
Work out your unavoidable annual spending. Subtract your State Pension, which for 2026 is up to €299.30 a week at 66, and rises if you defer it — up to €363.90 a week at 70. If a gap remains, buy an annuity large enough to close it, with a partner’s pension attached if you have a partner. Put everything else into an Approved Retirement Fund.
You then have a floor you cannot fall through and a fund that stays yours. It suits most people with a pot of any real size, and it removes the need to be right about how long you will live.
An Approved Retirement Fund only
Better if: you have other guaranteed income that already covers the essentials — a defined benefit pension, rental income, a working spouse with a pension. Or leaving money to your family is a priority. Or your health means an annuity is poor value and you cannot get an enhanced rate. Or your fund is large enough that running out is not a realistic risk.
Worse if: a bad run in the markets in your first few years would genuinely frighten you into bad decisions, or you have no appetite for reviewing investments in your eighties.
An annuity only
Better if: certainty matters more to you than anything else and you would rather never think about it again. Or your fund is modest and losing it would be catastrophic. Or you have no dependants and no wish to leave an inheritance. Or you qualify for an enhanced rate on health grounds, which can shift the numbers materially.
Worse if: you want to leave money behind, you need flexibility for one-off costs, or your income needs will change over time.
Five mistakes we see regularly
- Taking the first quotation offered. Rates differ between companies and the difference on a full lifetime is substantial. Shop it.
- Skipping the partner’s pension to get a bigger headline number. On our August 2026 quotes it cost about 8% of income and protected a partner for life.
- Treating it as one irreversible decision. You can annuitise part of the fund now and more later — and an Approved Retirement Fund can be used to buy an annuity at any time. An annuity cannot be undone in the other direction.
- Not disclosing health conditions or smoking. These can increase the income offered. There is no advantage in leaving them out.
- Deciding on the pension in isolation. The lump sum, the State Pension timing, other income, your partner’s pensions and your will all interact.
Common questions
Can I change my mind later?
You can move from an Approved Retirement Fund to an annuity at any time — Revenue confirms Approved Retirement Fund money “may be used at any time to purchase an annuity”. You cannot go the other way. Once the cooling-off period on an annuity ends, it is permanent. That asymmetry is a genuine argument for not annuitising everything on day one.
Do I have to take the minimum 4% if I do not need it?
Tax is deducted on the minimum whether you take the money or not, so leaving it in the fund gains you nothing on that portion. If you do not need the income, the question becomes what to do with it after tax, not whether to avoid the withdrawal.
What if I have several old pensions?
They can often be brought together before you retire, which simplifies the decision. Be aware that consolidating usually means fewer providers rather than a single policy — benefits from different former employers cannot always be blended into one contract.
Is my Approved Retirement Fund safe if the provider fails?
The fund is invested in your name and its value moves with the investments you choose, not with the provider’s own finances. An annuity is different: it is a promise from the life company, so the company’s strength genuinely matters.
What about the new auto-enrolment scheme?
As the law stands, the automatic enrolment retirement savings system does not offer an Approved Retirement Fund or annuity option — it provides for a lump sum pay-out at retirement, with up to 25% tax-free. The Department of Finance has said it intends to legislate for tax treatment along Personal Retirement Savings Account lines, so this is likely to change. If auto-enrolment will form part of your retirement, keep an eye on it.
When should I start looking at this?
Two to three years before you retire, not two months. It gives you time to consolidate old pensions, adjust how the fund is invested as you approach the date, decide on the lump sum, and compare quotations without a deadline over you.
Talk it through before you decide
This decision is worth getting right once. The annuity half of it cannot be undone, the tax treatment of what you leave behind depends on choices you make now, and the rates in front of you today are not the rates that were in front of your neighbour three years ago.
Approaching retirement and weighing up your options?
Book a free initial meeting. We will look at what you have, what it can produce, and what each route would mean for you and your family — with no obligation.
Related reading
- Approaching retirement — how we help
- Accessing your pension in retirement
- What are Approved Retirement Funds?
- What happens to your pension when you die
- How much is the State Pension in Ireland?
- How to calculate tax on pension income
This article is general information for the 2026 tax year and is not personal advice. Tax treatment depends on individual circumstances and may change. Annuity rates quoted were obtained on 31 August 2026 and change frequently; the figures shown are for one 66-year-old and are not a quotation for you. The value of investments held in an Approved Retirement Fund can fall as well as rise, and a fund can be exhausted. Greenway Financial Advisors Limited. Regulated by the Central Bank of Ireland. Registered No. C168372.