UNIVERSITY OF LIMERICKADDITIONAL VOLUNTARY CONTRIBUTIONSApril 2015

Jim O'Neill MIIPMQFA, FLIA

MERCER 218 April 2023

Agenda

• Main scheme pension benefits

• Additional Voluntary Contributions (AVCs)

• Investment Considerations

• Questions

MERCER 318 April 2023

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)

MERCER 418 April 2023

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

MERCER 518 April 2023

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)

MERCER 618 April 2023

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

MERCER 718 April 2023

Why Should You Consider Making AVC’s

• Short Service

• Cost Neutral Early Retirement

• Tax Free Lump Sum

• Extra Flexibility-Approved Retirement Fund (ARF)

MERCER 818 April 2023

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

MERCER 918 April 2023

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

MERCER 18/04/23

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%

MERCER 1118 April 2023

Tax ReliefExample of Tax Relief on AVC Contributions

Income Tax Rate 20% 40%

Gross Monthly Contributions €200.00 €200.00

Less income tax relief €40.00 €80.00

Actual monthly cost €160.00 €120.00

MERCER 1218 April 2023

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)

MERCER 1318 April 2023

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

MERCER 1418 April 2023

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

MERCER 1518 April 2023

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

Investment Considerations

MERCER 1718 April 2023

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

MERCER 1818 April 2023

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.

MERCER 1918 April 2023

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%

MERCER 2018 April 2023

Question TimeQuestion TimeQuestion TimeQuestion Time

MERCER 2118 April 2023

FURTHER INFORMATION

CONTACT

Jim O’Neill

Mercer

Mobile: 087-2205176

Email jim.o’neill@mercer.com