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Supplementary Life Plan

UNIVERSITY OF LIMERICK Supplementary Life Plan & Additional Voluntarys Contributions (AVC’s) Jim O’Neill Mercer, Limerick. Supplementary Life Plan. Eligibility

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Supplementary Life Plan

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  1. UNIVERSITY OF LIMERICK Supplementary Life Plan & Additional Voluntarys Contributions (AVC’s)Jim O’Neill Mercer, Limerick

  2. 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

  3. Supplementary Life Plan Costs • Cost of benefit is 0.60% of salary-paid monthly. Document Number PD012.1 Document Number PD012.1

  4. 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) Document Number PD012.1

  5. 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) Document Number PD012.1

  6. 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 Document Number PD012.1

  7. WHY Should You Consider Making AVC’s • Short Service • Cost Neutral Early Retirement • Tax Free Lump Sum • Extra Flexibility Document Number PD012.1

  8. 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 Document Number PD012.1

  9. 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 PD012.1

  10. 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 Document Number PD012.1

  11. 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 PD012.1

  12. Impact of Tax Reliefs €2,400 per annum saved for 10 years Return on Fund of 7.5% per annum Pension FundOther 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% Document Number PD012.1

  13. What will €200 per month be worth at 65? Assuming 6% fund growth, 3% contribution increases Document Number PD012.1

  14. 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 Document Number PD012.1

  15. 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 Document Number PD012.1

  16. 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 Document Number PD012.1

  17. 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 PD012.1

  18. How does the plan work? Your AVCs Your Retirement Account Document Number PD012.1

  19. Investment Objectives of a Pension Fund Growth Objective: Investment Returns = Salary Inflation + 2% p.a. Achieve a real rate of return to protect members' living standards in retirement. Inflation is the enemy! Document Number PD012.1

  20. Investment Strategy to Meet Objectives *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 Document Number PD012.1

  21. Risk / Return EQUITIES High High MANAGED Medium Medium FIXED INTEREST CASH Low Low Risk Returns Document Number PD012.1

  22. 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. Document Number PD012.1

  23. Consensus Fund Asset and Country Mix @ 1.1.08 Country Allocation Collective wisdom of pension fund managers in Irish market place Avoids asset calls Stock Selection Follows indexed stock Avoids stock selection risk Avoids style risk Transaction Cost Minimisation Buy and hold strategy Turnover is 1/10th of typical active portfolio Savings in transaction costs c. 0.5% p.a. Document Number PD012.1

  24. Consensus Fund Performance Performance Objective: To produce CONSISTENT second quartile managed fund performance (as measured by the pooled fund surveys) Source: Mercer Pooled Fund Survey Document Number PD012.1

  25. IL Active Managed Fund Source: Pooled Fund Surveys to 01/01/2008 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 Document Number PD012.1

  26. IIS - 5 • Automated transfer from Consensus to Exempt Guaranteed Fund. • 20% per annum for each of the last 5 years. Will normally run to age 65 but can run over any 5 year period after age 50 if IL advised Document Number PD012.1

  27. 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. Document Number PD012.1

  28. 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. Document Number PD012.1

  29. 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 PD012.1

  30. 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 PD012.1

  31. 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% Document Number PD012.1

  32. Member Communication …the members can fully understand and take control of their pension Online Access PensionPhone Yearly Benefit statements Fund Updates Document Number PD012.1

  33. Document Number PD012.1

  34. Question Time Document Number PD012.1

  35. FURTHER INFORMATION CONTACT Jim O’Neill Mercer Crescent House, Upper Hartstonge St. Limerick. Tel: 061-313756 Mobile: 087-2205176 Email jim.o’neill@mercer.com Document Number PD012.1

  36. www.mercer.ie

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