Approved Retirement Funds (ARFs)
An ARF is a post-retirement pension vehicle that usually houses the 75% balance of a pre-retirement pension once crystallised. More details
Death Benefit Value:
o If the ARF is transferred to a surviving spouse, the transfer is tax-free and the spouse can often simply take over the ARF.
o ARFs inherited by a child over 21 are subject to a flat income tax rate of 30%. Note that the CAT Group Thresholds do not apply.
o ARFs inherited by a child under the age of 21 are subject to the Capital Acquisition Tax (CAT).
o All others: The ARF is taxed at the deceased’s marginal rate of tax at the date of death. The value is also subject to CAT for the beneficiary.
Tax & other Planning Points:
o ARFs retain their capital value on death, making them a useful to form part of the estate for inheritance planning.
o If pensions are retired too early, and ARFs therefore start to be drawn down too early in one’s life - and / or if distributions are taken in excess of the minimum
imputed distribution amounts - the risk of ARF bomb-out is increased.
o If one wants their ARF to go to a surviving spouse or to specific beneficiaries, it should be clearly set out in a Will.
o Note that, on notification of death, the ARF Qualified Fund Manager (QFM) may automatically move the ARF to Cash.
o We would always recommend that ARF holders ensure that their spouse is familiar with the ARF structure and investment strategy.
Defined Benefit (DB) pensions or Annuities
These pension types provide a guaranteed income (for life) from a specific age.
With Company DB Schemes, the amount is generally based on the individual’s final salary and years of service with a company. Annuities can be purchased in the open market, and the features of the annuity (e.g. Single life v Joint Life) can be decided upon at initial investment stage.
Death Benefit Value:
o If the DB Pension or Annuity is in sole name only, it falls away as soon as the person dies. There is no capital value inheritance as such
o Sometimes there may be a 50% dependent’s pension, whereby half of the pension amount would then go to a dependent on death of the owner. In this case, on this 2nd death, the pension income would fall away completely.
Tax & other Planning Points:
o Income from a DB Scheme is taxed at the marginal rate of tax.
o These types of pensions leave no capital value inheritance for children. However, they are useful for those who want a predictable level of income in retirement and / or do not have children to leave an inheritance to.
Personal Pensions, PRSA’s and Buy Out Bond’s (where a memeber has left service)
These are pre-retirement pension policies that are not linked or tied into any specific trust-based company pension scheme.
Death Benefit Value:
Benefits on death are subject to Capital Acquisition Tax (CAT) in the hands of the recipient, meaning that spouses receive the lump sum tax-free and any other beneficiaries are taxed based on the CAT Group Threshold.
There is no requirement to purchase an ARF or Annuity. The payment is made to the Executors, who are responsible for distributing the funds to the beneficiaries.
Tax & other Planning Points:
These types of pensions are the most simple and straightforward to administer on death.
Employees of Occupational Pension Schemes / Master Trusts:
Company Directors or employees may have a pension benefit in a company pension scheme. These are known as Executive Pensions, Occupational Scheme and now generally known as Master Trusts.
The individual members may also have Death-In-Service (DIS) cover, such as Life Cover as a multiple of salary while still an employee.
Death Benefit Value:
In service members, still in employment on death:
o The maximum lump sum payable is limited to 4x the member’s salary. Importantly, this includes their Company Pension and any amount paid out via death-in-
service cover.
o Any surplus must be used to purchase a dependent’s ARF or an Annuity. Subject to CAT in the hands of the beneficiary.
Deferred members: There is no limit to the lump sum paid out. The amount is the value of the member’s fund.
Tax & other Planning Points:
For in-service members, a nomination form or letter of wishes indicating how they wish benefits to be paid should ideally be completed
One has to be mindful that there is a big difference on death in how much of a lump sum gets paid out between in-service members and those how had left service.
Summary
Should you wish to discuss any proactive financial planning in the context of a pension strategy, please reach out to any of our team.
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Disclaimer: Please note that the above points are our understanding and opinions on the treatment of pensions on death at this time of writing in June 2026. Compass Private Wealth does not provide tax advice. No information above should be relied on as formal advice in relation to Pension planning. It is for guidance purposes only.