Www.mercer.ie Document Number PD012.1 UNIVERSITY OF LIMERICK Supplementary Life Plan & Additional Voluntarys Contributions (AVC’s) Jim O’Neill Mercer,

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*

Document Number PD012.1Document Number PD012.1

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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]


www.mercer.ie

Documents

Www.mercer.ie Document Number PD012.1 UNIVERSITY OF LIMERICK Supplementary Life Plan & Additional Voluntarys Contributions (AVC’s) Jim O’Neill Mercer,