Document Number PD014.1 University of Limerick AVC Plan 28 April 2009 Jim O'Neill-Mercer, Limerick Stephen O’Hanlon-Irish Life

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

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

3 Mercer 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

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

5 Mercer Example Pensionable service by retirement age: 40 yrs Pensionable remuneration €60,000 p.a. State pension (Contributory) € X 52 €11,975 p.a. Limit= €11,975 x 3 1/3 rd = €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

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

7 Mercer Maximum Gratuity  EXAMPLE – Salary € 80,000 – Service30 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

8 Mercer 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

9 Mercer Contribution Limits AGE CONTRIBUTION LIMIT  UP TO 3015%  %  %  %  %  60 and over 40% Maximum net relevant earnings of €150,000 for 2009 Document Number PD014.1

10 Mercer 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

11 Mercer What will €200 per month be worth at 65? Assuming 6% fund growth, 3% contribution increases Cost after tax at Years to Retirement AVC fund 41% + PRSI 20% + PRSI 25 €157,700€46,200€64, €102,900€34,200€47, €63,000€23,600€33, €34,300€14,600€20,400 Document Number PD014.1

12 Mercer 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

13 Mercer 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

14 Mercer 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 TAXINCOME 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

15 Mercer 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 Document Number PD014.1

17 Mercer 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

18 Mercer 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

19 Mercer 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 ProtectionFund1.00% Document Number PD014.1

20 Mercer Question Time Document Number PD014.1

21 Mercer FURTHER INFORMATION CONTACT Jim O’Neill Mercer Crescent House, Upper Hartstonge St. Limerick. Tel: Mobile: Document Number PD014.1

Document Number PD014.1