university of limerick avc plan

www.mercer.ie

Document Number PD014.1

University of Limerick AVC Plan

28 April 2009

Jim O'Neill-Mercer, Limerick

Stephen O’Hanlon-Irish Life

2Mercer

Agenda

Main scheme benefits

Additional Voluntary Contributions (AVCs)

Investments

Questions


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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)


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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


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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)


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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


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WHY Should You Consider Making AVC’s

Short Service

Cost Neutral Early Retirement

Tax Free Lump Sum

Extra Flexibility


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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


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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


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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


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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


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What will €200 per month be worth at 65?

Assuming 6% fund growth, 3% contribution increases

Cost after tax at Cost after tax at

Years to Retirement

AVC fund 41% + PRSI 20% + PRSI

25 €157,700 €46,200 €64,800

20 €102,900 €34,200 €47,800

15 €63,000 €23,600 €33,000

10 €34,300 €14,600 €20,400


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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)


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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


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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


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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


Investment Considerations


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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


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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.


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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%


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Question TimeQuestion TimeQuestion TimeQuestion Time


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FURTHER INFORMATION

CONTACT

Jim O’Neill

Mercer

Crescent House,

Upper Hartstonge St.

Limerick.

Tel: 061-313756

Mobile: 087-2205176

Email jim.o’[email protected]


www.mercer.ie


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