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University of Limerick AVC Plan

28 April 2009. University of Limerick AVC Plan. Jim O'Neill-Mercer, Limerick Stephen O’Hanlon-Irish Life. Agenda. Main scheme benefits Additional Voluntary Contributions (AVCs) Investments Questions. Document Number PD014.1. Main Scheme Benefits- Appointed before 6 th April 1995.

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University of Limerick AVC Plan

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  1. 28 April 2009 University of Limerick AVC Plan Jim O'Neill-Mercer, Limerick Stephen O’Hanlon-Irish Life

  2. Agenda • Main scheme benefits • Additional Voluntary Contributions (AVCs) • Investments • Questions Document Number PD014.1

  3. Main Scheme Benefits-Appointed before 6th April 1995 • Retirement benefits: Pension • 1/80th of Pensionable remuneration for each year of reckonable service subject to a maximum of 40/80ths Plus • Retirement benefits: Tax free lump sum • 3/80th of Pensionable Remuneration for each year service subject to a maximum 120/80th (1.5 times) Document Number PD014.1

  4. Example Pensionable service by retirement age: 40 yrs Pensionable remuneration €60,000 p.a. Pension Pension entitlement= 40 X 1/80 * €60,000 = €30,000 pension income p.a. Plus Tax-free lump sum 40 X 3/80ths X €60,000 = €90,000 Document Number PD014.1

  5. Main Scheme Benefits-Appointed on or after 6th April 1995 (class A PRSI) • Retirement benefits: Pension • Pension 1/200th of Pensionable Remuneration below 3 1/3rd state contributory pension x Pensionable Service. PLUS • (where applicable) 1/80th of Pensionable Remuneration over 3 1/3rd state contributory pension X Pensionable Service. • Retirement benefits: Tax free lump sum • 3/80th of Pensionable Remuneration for each year service subject to a maximum 120/80th (1.5 times) Document Number PD014.1

  6. Example Pensionable service by retirement age: 40 yrs Pensionable remuneration €60,000 p.a. State pension (Contributory) €230.30 X 52 €11,975 p.a. Limit= €11,975 x 3 1/3rd = €39,918 Pension Pension entitlement= 40/200 X €39,918 p.a. + 40/80ths x (€60,000-€39,918) p.a. = €7,984 + €10,041=€18,025 p.a. + state €11,975 Total €30,000 pension income p.a. Plus Tax-free lump sum 40 X 3/80ths X €60,000 = €90,000 Document Number PD014.1

  7. WHY Should You Consider Making AVC’s • Short Service • Cost Neutral Early Retirement • Tax Free Lump Sum • Extra Flexibility Document Number PD014.1

  8. Maximum Gratuity • EXAMPLE • Salary € 80,000 • Service 30 Years • Gratuity € 80,000 X 3/80 X 30 = € 90,000 • Revenue Maximum €120,000 • Shortfall € 30,000 • Solution • Build An AVC Fund Of € 30,000 And Take It Tax Free At Retirement Document Number PD014.1

  9. WHY AVC’s ? • Tax And Prsi Relief On Contributions • Tax Exempt Fund • Option To Take Portion Of Fund Tax Free • Flexibility In How To Use Fund At Retirement But • Pensions Subject To Income Tax • Fund Cannot Be Accessed Until Retirement Document Number PD014.1

  10. Contribution Limits AGE CONTRIBUTION LIMIT • UP TO 30 15% • 30-39 20% • 40-49 25% • 50-54 30% • 55-59 35% • 60 and over 40% Maximum net relevant earnings of €150,000 for 2009 Document Number PD014.1

  11. Illustration Of Tax Relief • Monthly Contribution €200 €200 • Tax Relief ( 20%/ 41%) €40 €82 • Prsi Relief ( 2.90%) €6 €6 • Net Cost To You €154 €110 Document Number PD014.1

  12. What will €200 per month be worth at 65? Assuming 6% fund growth, 3% contribution increases Document Number PD014.1

  13. What happens to your AVCs …when you retire? You can use them to: • increase your retirement income • increase your dependants’ pensions • if not part of main scheme benefits, provide for increases on your retirement income • increase or provide a tax-free lump sum • invest in an ARF (Approved Retirement Fund) Document Number PD014.1

  14. Approved Retirement Funds (ARF’s) • Introduced for AVCs in Finance Bill 2000 • More Flexibility • No Longer Have to Buy an Annuity • You Must Have a Guaranteed Pension of €12,700 P.A to Avail of ARF Options • No Tax on Investment Income/gains • Can Draw Down Money at Any Stage • Income Tax Paid on Any Drawdown From ARF • ARF Becomes Asset in Your Hands • You Control Investment Strategy of Fund • 3% Deemed Drawdown in 2009-phased in from 2007 Document Number PD014.1

  15. What Happens On Your Death ? • The Value Of Your ARF Forms Part Of Your Estate • Tax Treatment Of ARf On Your Death • FUND TRANSFERRED TO INHERITANCE TAX INCOME TAX • SPOUSE (ARF) NONE NONE • SPOUSE (LUMP SUM) NONE PAYE ( HIGHER RATE ) • CHILD OVER 21 NONE ONCE OFF (STANDARD RATE) • CHILD UNDER 21 POTENTIAL NONE Document Number PD014.1

  16. Who Will The ARF Option Suit ? • Those Who Consider Their Main Pension Scheme Income Sufficient In Retirement • Those Who Do Not Need A Regular Income From Their AVC Fund But Who Want The Flexibility To Take Ad Hoc Amounts • Those Who Wish To Pass On The Fund To A Relative On Death • Those Who Do Not Need Extra Income Now But May In The Future Document Number PD014.1

  17. Investment Considerations Document Number PD014.1

  18. AVCs Vs Notional Service Purchase(NSP) • NSP guarantees the buy back of years to make up the shortfall in pension. • AVCs don’t offer such a guarantee. The fund value at retirement depends on certain assumptions: • Contributions will increase by 3% • Salaries will increase by 3% • Fund assumes to grow by 5% pa-this may be more or less than the actual return. • Charges remain the same Document Number PD014.1

  19. AVCs Vs Notional Service Purchase(NSP) • We recommend that a member gets two quotations: NSP quotation from the HR department. AVC quotation from Mercer, then compares both. Document Number PD014.1

  20. Plan Charges • 5% Charge on Regular Contributions • 1.5% Charge on Single premiums • Policy Fee €1.76 per month. (Indexed each year) • Annual Fund Management Charge • Exempt Consensus Fund 0.65% • Exempt Active Managed Fund 0.75% • Secured Performance Fund 1.0% • Capital ProtectionFund 1.00% Document Number PD014.1

  21. Question Time Document Number PD014.1

  22. FURTHER INFORMATION CONTACT Jim O’Neill Mercer Crescent House, Upper Hartstonge St. Limerick. Tel: 061-313756 Mobile: 087-2205176 Email jim.o’neill@mercer.com Document Number PD014.1

  23. www.mercer.ie Document Number PD014.1

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