UNIVERSITY OF LIMERICK ADDITIONAL VOLUNTARY CONTRIBUTIONS April 2015 Jim O'Neill MIIPM QFA, FLIA

Agenda Main scheme pension benefits Additional Voluntary Contributions (AVCs) Investment Considerations Questions 16 April 2017

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) 16 April 2017

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 16 April 2017

Main Scheme Benefits- Appointed on or after 6th April 1995 (class A PRSI) Retirement benefits: Pension (integrated with SW 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) 16 April 2017

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 pension €11,975 Total €30,000 pension income p.a. Plus Tax-free lump sum 40 X 3/80ths X €60,000 = €90,000 16 April 2017

Why Should You Consider Making AVC’s Short Service Cost Neutral Early Retirement Tax Free Lump Sum Extra Flexibility-Approved Retirement Fund (ARF) 16 April 2017

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 Only possible if less than 40 years pensionable service Revenue maximum check in all cases but especially for Cost Neutral Early retirement Overall lifetime limit of €200,000 16 April 2017

Why AVC’s ? Tax 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 16 April 2017

Why AVCs?-Contribution Limits Any pension contributions you make (including AVCs) will be eligible for tax relief at your marginal rate of income tax, subject to your age and total taxable earnings. The maximum earnings on which relief is available in 2015 is €115,000 Age % of Earnings 29 years or under 15% 30 – 39 years 20% 40 – 49 years 25% 50 – 54 years 30% 55 – 59 years 35% 60 years, or over 40% 16/04/2017

Tax Relief Example of Tax Relief on AVC Contributions Income Tax Rate 20% 40% Gross Monthly Contributions €200.00 Less income tax relief €40.00 €80.00 Actual monthly cost €160.00 €120.00 16 April 2017

What happens to your AVCs …when you retire? You can use them to: increase or provide a tax-free lump sum-(up to revenue maximum and subject to a lifetime limit of €200K) increase your retirement income increase your dependants’ pensions if not part of main scheme benefits, provide for increases on your retirement income invest in an ARF (Approved Retirement Fund) 16 April 2017

What’s an ARF? It’s a tax-efficient investment vehicle for after you retire It gives you added flexibility of withdrawing cash as required in retirement The investment return it earns is exempt from tax You must withdraw a minimum of 4% p.a. of the value of the ARF (withdrawals subject to tax, USC & PRSI) once you turn 60 5% minimum from age 71 It is a tax-efficient inheritance planning tool 16 April 2017

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-Subsequent withdrawals subject to income tax SPOUSE Directly (LUMP SUM NONE PAYE ( HIGHER RATE ) CHILD OVER 21 NONE Yes 30% Income Tax CHILD UNDER 21 POTENTIAL NONE 16 April 2017

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 16 April 2017

Investment Considerations

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 16 April 2017

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 compare both. 16 April 2017

Plan Charges 0.15% of fund value- Pension levy 2015 5% Charge on Regular Contributions 1.5% Charge on Single premiums Policy Fee €1.90 per month. (Indexed each year) Annual Fund Management Charge Cash Fund 0.75% Secured Performance Fund (closed) 1.0% Capital Protection Fund 1.0% Exempt Consensus Fund 0.65% Exempt Active Managed Fund 0.75% Diversified Balanced Fund 1.12% Indexed 50/50 Equity Fund 0.65% 16 April 2017

Question Time 16 April 2017

FURTHER INFORMATION CONTACT Jim O’Neill Mercer Mobile: 087-2205176 Email jim.o’neill@mercer.com 16 April 2017