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Aviva: Public
What we’ll cover
►What is it and who it is for? ►What happens if they die in service?
►What’s under the bonnet ►What happens if they get seriously ill?
►Contributions ►What happens if they leave the GMS?
►What are the investment options
►Where do you come into it?
►Retirement options ►Questions
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Aviva: Public
What is it and who is it for?
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A scheme for GPs who have GMS IncomeAutomatically enrolled/Can’t accept transferOccupational pension or a Trust RAC?It isn’t the state Superannuation SchemeIt isn’t Defined BenefitIt’s complicated!
Aviva: Public
What does the scheme look like?
GMS
Administered by Mercer
Investment Managers
(mainly Mercer)
4 Investment
options
Both HSE and GPs
contribute
AVCs can be made to
scheme
NRA is 65
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Under The Bonnet
Value Activemembers
Inactivemembers
Pensioners Widow(ers)
€875m 2,456 730 478 114
Source: General Medical Services Summary Trustee Annual Report for year ended 30 June 2016
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Contributions paid in
HSE pays in 10% of Capitation Fees per month
Member pays in 5% of Capitation Fees per month
Members can make AVCs up to relevant limits
The HSE 10% does not form part of taxable income for member and so doesn’t go into tax return
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What happens to the contributions?
Each member has their own account within the scheme
95% of HSE contribution is invested
Other 5% is used to pay Death in Service/ill health retirement benefits and cost of administering the scheme
No deduction on member’s 5%
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Investment option 1 - “Main GMS Fund”
What exactly do we mean by “Main GMS fund”?
A bonus is applied to each members’ account every 31 December
This is a percentage of the average value throughout the year
Calculated by reference to the gains and losses averaged over four years
From age 55, member can switch out at end of quarter – can’t switch back
Member receives a statement outlining bonus
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Investment option 1 – Previous bonus declarations
Year To 31 Dec Investment Return Actual Bonus Declared2009 -20.53% -5.50%
2010 +9.90% -5.20%
2011 +13.10% -9.40%
2012 +0.30% +6.90%
2013 +10.50% +5.90%
2014 +13.90% +7.60%
2015 +11.10% +8.40%
2016 -0.8% +5.70%
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Investment option 2 - Cash fund
Only available from age 55
Transfer of the realisable value
Quarterly switching from main GMS fund
Can’t switch back
Can switch all or part
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Aviva: Public
Investment option 3 - Bond fund
Only available from age 55
Transfer of the realisable value
Quarterly switching from main GMS fund
Can’t switch back
Can switch all or part
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Aviva: Public
Investment Option 4 - Lifestyle option
Occurs over 10 years before the member’s expected NRD
Aim is that the member’s fund is invested 25% Cash Fund, 75% Bond Fund at retirement
Must commit 100% of the member’s account and any future contributions
Realisable value
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Retirement options
Normal Retirement Age is 65
Can work past NRA if they wish
Can retire from 50 onwards if they’ve given up their GMS practice
Can retire early on ill health at any age
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What are the traditional retirement benefits?
Based on pension pot built up
Subject to Revenue Limits (scheme)
Can take 25% of main scheme as a cash lump sum
Balance used to purchase an annuity
This doesn’t include the AVC fund
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Where does the member’s pension income come from? Can be purchased from a life company
Can be paid from GMS scheme
A rate is calculated by the scheme with a view (but not a promise) to provide cost of living increases
Pension cannot be reduced according to current scheme rules
Max of 2/3 of pension to spouse/civil partner on death
Pension Increase of 1.5% in 2015. Prior to that last paid in 2007
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ARF Option
Out of the blue
Allow the ARF Option
Good news for all
Financial advice still needed to decide best option
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Ill health early retirement Pension pot would be its current value or value calculated by formula involving age,
service, average capitation fees and member contributions
Member has two options:
Take pension benefits immediately
Leave invested and take pension benefits at a later date
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Death In Service A lump sum is payable to estate
Greater of fund value or a % of members Annual Capitation Fees over previous 5 years plus refund of member contribution plus interest
For example under 45 with 5 or more years service equals 400%
Table in Trustee Annual Report
Normal Revenue Death in Service rules apply so any fund over 4 times salary must be used to purchase an annuity for dependants
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Withdrawal from service Refund of contributions not allowed
Taking a transfer value (TV) not allowed (or in)
TV can be made where there is a PAO
Account left invested on their behalf
Can access from age 50 onwards
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Where you come in
Retirement Age 65
25% of main scheme as a cash lump sum
Balance to provide pension (either payable from scheme or purchase annuity)
Additional Voluntary Contributions (AVCs) – when you know the rules you can help your client get a higher lump sum and a greater pension pot
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A quick example
Frank is a GP about to retire:
GMS Scheme: €350,000 AVC: €100,000 Age 65 with >20yrs service Net GMS Final Remuneration of €125,000
What he could do is:
Take 25% cash lump sum €87,500 Use €262,500 to buy an annuity Have €100,000 post retirement
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However, if you know the rules he could:
Get a cash lump sum €187,500 Use €262,500 to buy an annuity
By using his AVC fund to increase his lump sum entitlement.
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Additional Voluntary Contributions- It’s as easy as AVC!
Can make AVCs up to relevant age related limits
Remember, they’re already paying in 5% of Capitation Fees themselves
Deadline of 31 October each year
2% of AVC will be deducted to cover administrative expenses
Members don’t have to make AVCs to GMS Scheme – Can make them to PRSA AVC
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Why make AVCs? Tax relief Give your pension a boost! Aim to provide a larger pension pot at retirement Flexible retirement options - ARF option Increase Lump Sum Entitlement
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Where to make the AVC?
Why a PRSA AVC?
DiversificationChoose providerGreater fund choiceChoose charging structurePortabilityGet Advice
GMS Scheme PRSA AVCOR
Why the GMS scheme?
SimplicityAll funds in one placeEase of administrationAnnuity From Scheme
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Launched Wednesday 28th February
6 Strands:
• Reform of the State Pension• A New Automatic Enrolment Savings System• Improving governance and regulation• Measures to support Defined Benefit Schemes• Public Service Pension Reform• Supporting fuller working
A Roadmap For Pensions Reform
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• Set at a level of approx. 34%/35% of average earnings
• Line future increases to changes in CPI and wage levels to ensure value is maintained
• PAYG model works once there is 4:1. In 40 years 2.3:1
• Potential deficit of up to €400 bn over next 50 years
• Total Contributions Approach (TCA) to calculate level of pension entitlement
• More logical and transparent. Will need a full record of 40 years PRSI contributions
• No further increase in SPA prior to 2035 other than those already provided for
Strand 1 – Reform of the State Pension
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• No further increase in SPA prior to 2035 other than those already provided for
• Any change in SPA directly linked to increases in life expectancy
• Give a notice period of 13 years with first assessment in 2022
• Assessment every 5 years
• Social Insurance Contribution Rates and classes are actuarially reviewed annually
• Consider and present options for the amalgamation of PRSI and USC
Strand 1 – Reform of the State Pension
© Aviva PLC Private and confidential31
Aviva: Public
• Pension Funds of circa €110 Bn in Ireland
• 1% of EU population but 50% of all pension schemes! 160,000 of them!
• 35% of private sector workforce has such cover
• Complexity and lack of confidence has led to a choice paralysis
• “Opt Out” rather than an “Opt In” basis
• By 2022 begin implementation of an Auto Enrolment system
• Going to develop and publish a “strawman” Auto Enrolment design
Strand 2 – Auto Enrolment
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Aviva: Public
• Over 23 years and earning over €20,000 per annum without existing private provision
• Contributions by both workers/employers and the state
• Opt out following a minimum period (9 months)
• 6%/6%/2% - Moving there over a specific time period
• Will replace rather than augment existing tax reliefs
• Payable at the same age as the State Pension
• Can retain existing arrangements
Strawman
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• Too many large pension schemes/fees are too high/poor governance
• Require higher standards in the management and governance of schemes
• Empower PA to take a risk based approach and enforce fitness and probity on schemes
• New & existing schemes to gain “authorised status” from PA
• Lead In Time for existing schemes of 18-24 months
• Rationalise the number of different types of products
• Reduce the large number of pension schemes in operation – Master Trust
Strand 3 – Improving governance and regulation
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• Trustees are fit and proper
• New professional standards
• Trustee Boards must consist of two trustees
• One has appropriate qualification and one has at least 2 years experience
• PA have powers of removal
• Corporate Trustees have two directors one with experience and one with qualification
• Trustee Development and CPD
• PA to publish new governance codes and standards
Trustees
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• Big is good and small is bad
• Introduce master trusts and get rid of one member/small schemes
• Rationalise amount of pension products/Eliminate anomalies
• Review the cost of funded supplementary pensions to the Exchequer
• Can ARFs be improved?
• Not regulated by the PA
• Could the facilitate group ARF products or in-scheme drawdown
Reducing number of schemes/pension products
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Aviva: Public
• DB schemes have dropped from 2,220 in 1996 to 667 in 2016
• Still 102,000 pensioners, 111,000 active members and 415,000 deferred
• DB assets under management is €62 bn
• 26% of schemes still not meeting the funding standard
• Advance Social Welfare, Pensions & Civil Registration Bill 2017
• More scrutiny, provision of information and increased powers
• Review Funding Standard
Strand 04 – Support DB Schemes
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Aviva: Public
• SPSPS from 2013 – NRA in line with SPA with compulsory age of 70
• Joined before 2004. Compulsory retirement age of 65/66
• Increase compulsory retirement age to 70 for pre 2004 people
• PRD to be converted to a permanent Additional Superannuation Contribution (ASC)
Strand 5 – Public Service Pension Reform
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Aviva: Public
• People encouraged and facilitated in working………..if the wish to
• State Pension Deferral System
• People on reaching state pension age can defer pension
• Actuarial adjustment would be applied
• Could make PRSI contributions past State Pension Age
• Clarify mandatory retirement age provisions
• Review pension drawdown rules - NRAs
Strand 6 – Supporting fuller working lives
© Aviva PLC Private and confidential39