University of Limerick AVC Plan

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University of Limerick AVC Plan

• 28 April 2009

Jim O'Neill-Mercer, Limerick Stephen
OHanlon-Irish Life
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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
  10,04118,025 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 AVCs

• 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 AVCs ?

• 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
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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 (ARFs)

• 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

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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 dont 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 Time
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FURTHER INFORMATION

• CONTACT
• Jim ONeill
• Mercer
• Crescent House,
• Upper Hartstonge St.
• Limerick.
• Tel [phone]
• Mobile [phone]
• Email jim.oneill_at_mercer.com

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www.mercer.ie