www.mercer.ieDocument Number PD012.1
UNIVERSITY OF LIMERICK Supplementary Life Plan
& Additional Voluntarys Contributions
(AVC’s) Jim O’Neill
Mercer, Limerick
2Mercer
Supplementary LifePlan
Eligibility
All pensionable employees of the University of Limerick under age 55.
Cover will cease upon retirement or resignation
Benefits
Life Cover of 2.5 X Salary
Salary Linked-Benefit rises each year in line with salary increases
Same rate for all members, regardless of age, gender or smoker status
Costs less than individual plan
Usually Short application form-4 questions, Underwritten by Friends First-3 month window (Until July 08) D.O.A. now only required
Document Number PD012.1
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Supplementary Life Plan
Costs
Cost of benefit is 0.60% of salary-paid monthly.
Salary €20,000 €50,000 €75,000
Benefit €50,000 €125,000 €187,500
Monthly Prm * Premiums attract tax relief
€10.00* €25.00* €37.50*
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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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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 €50,000 p.a.
State pension (Contributory) €223.30 X 52 €11,611 p.a.
Limit= €11,611 x 3 1/3rd = €38,699
Pension entitlement= 40/200 X €38,699 p.a. + 40/80ths x (€50,000-€38,699) p.a. = €13,390 p.a.
+ State €11,611
Tax-free lump sum 40 X 3/80ths X €50,000 = €75,000
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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 €275,239
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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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Impact of Tax Reliefs
€2,400 per annum saved for 10 years
Return on Fund of 7.5% per annum
Pension Fund Other
Net Cost (20% tax, 6.0% PRSI) €17,760 €24,000
Net Cost (42% tax, 2.0% PRSI) €13,440
Value of Fund after 10 years: €35,000 €32,000
Real return on investment: 97 %
(i.e. Value/Net Cost) OR 160% 33%
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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 Options Are Available At Retirement ?
Accumulated Fund Available To Provide The Following Options:
– Maximise Tax Free Cash Sum
– Take Balance Of Fund As A Cash Sum ( Subject To Tax )
– Additional Pension
– 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 from 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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How does the plan work?
Your AVCs
Your RetirementAccount
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Growth Objective:
Investment Returns = Salary Inflation + 2% p.a.
Investment Objectives of a Pension Fund
Achieve a real rate of return to protect members' living standards in retirement.
Inflation is the enemy!
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* Long term returns from a Diversified Portfolio of:
Equities Inflation + 5.0% p.a
(Company Shares)
Property Inflation + 4% p.a.
(Commercial)
Bonds Inflation + 2.5% p.a.
(Government Debt)
Cash Inflation + 1% p.a.
* Managed Fund = Combination of these assets
* Concentration in equities is desired for long term growth.
* Diversification essential to control risk
Investment Strategy to Meet Objectives
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Risk / Return
CASH
EQUITIES
MANAGED
Risk Returns
Low
Medium
High
Low
Medium
High
FIXED INTEREST
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What Funds Are Available?
Fund Manager Is Irish Life
Choice Of Funds- Medium Risk-Consensus, Exempt Managed
Low Risk-Secured Performance, Capital Protection Fund,
Consensus:
Aims To Perform In Line With The Average Pension Managed Fund By Mirroring The Average Pension Fund’s Asset Allocation.
Exempt Active Managed:
Aim Is To Achieve Above Average Performance Through Active Asset Allocation And Stock Selection
Suitable For Members Who Have A Number Of Years To Retirement.
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Consensus Fund
Country Allocation Collective wisdom of pension fund
managers in Irish market placeAvoids asset callsStock SelectionFollows indexed stock Avoids stock selection risk Avoids style riskTransaction Cost MinimisationBuy and hold strategyTurnover is 1/10th of typical active
portfolioSavings in transaction costs c. 0.5% p.a.
Asset and Country Mix @ 1.1.08
0
10
20
30
40
50
60
70
80
90
Equities Bonds Property Cash
0
5
10
15
20
25
30
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Consensus Fund Performance
Source: Mercer Pooled Fund Survey
Performance Objective: To produce CONSISTENT second quartile managed fund performance (as measured by the pooled fund surveys)
Returns to 1st January 2008 1 Year 3 Year 5 Year
% p.a. % p.a. % p.a.
Consensus Fund -3.2 10.2 10.9
Average Managed Fund -3.7 9.7 10.3
Relative to Average 0.5 0.5 0.6
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IL Active Managed Fund Source: Pooled Fund Surveys to 01/01/20081 Year 3 Year p.a. 5 Year p.a.
ILIM Active Managed Fund -3.3 10.3 11.5
Average Fund -3.7 9.7 10.3
0.40 0.60 1.20
Top quartile performing single active manager over 3 and 5 years
Multiple MoneyMate awards – 2006
Pension Fund Manager Award
Solid and repeatable process... driven by commitment
0
5
10
15
20
25
Irish
Equ
ity
US E
quity
UK E
quity
Japa
nEq
uity
Euro
pean
Equi
ty
Pacif
ic
Cash
Fixe
dIn
tere
st
Prop
erty
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IIS - 5
Automated transfer from Consensus to Exempt Guaranteed Fund. 20% per annum for each of the last 5 years.
AgeConsensus
%Guaranteed
Fund %
59 100 0
60 80 20
61 70 30
62 60 40
63 40 60
64 20 80
Will normally run to age 65 but can run over any 5 year period
after age 50 if IL advised
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What Funds Are Available?
Secured Performance Fund:– Aim Is To Eliminate Manager Selection Risk And Market Risk While
Achieving Average Managed Fund Returns Over The Long Term.– A Return Is Declared Annually, And Locked In. Can’t Be
Withdrawn.– Guarantee of no negative returns. 4.9% net declared for 2008.– Must Have 10 yrs to Retirement. No lump sums allowed
Capital Protection Fund– Aim Is To Give Members Equity Participation While Also
Guaranteeing The Value Of Fund Won’t Fall– Minimum return for 2008 is 0.75%– Suitable For Members Close To Retirement.
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Points To Remember
If Intend To Take Your AVCs As A Tax Free Amount Or As An Annuity Then You Are Planning For A Particular Point In Time And It Is Important That You Protect Your Fund As The Time Approaches
If You Intend To Reinvest Your AVC Fund In An ARF Then You May Take A Longer Term View Although We Would Urge Caution In Either Case
We would advise all members over age 55 to regularly review their AVC Fund Choice.
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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% – Exempt Guaranteed Fund 1.00%
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Member Communication
…the members can fully understand and take control of their pension
Online Access
PensionPhone
Yearly Benefit statements
Fund Updates
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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 PD012.1
www.mercer.ie
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