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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
Document Number PD014.1
3Mercer
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)
Document Number PD014.1
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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
Document Number PD014.1
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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
Document Number PD014.1
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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
Document Number PD014.1
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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
Document Number PD014.1
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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
Document Number PD014.1
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]
Document Number PD014.1
www.mercer.ie
Document Number PD014.1