Ronan McGrath BFS, QFA, FLIA, AIIPM Sales & Business Development Manager IMO Financial Services

1. Ronan McGrath BFS, QFA, FLIA, AIIPM Sales & Business Development Manager IMO Financial Services

2. What now for pensions…… Agenda…. • Recent Changes • Standard Fund Threshold & Personal Fund Threshold • Revenue Maximum Limits • Maximising your Tax Reliefs • AVC Options • Spouses Pensions • Making the right decisions in retirement – Annuity v ARF

3. A time of change…… 2011 ARF Options all schemes 2003 Pensions Ombudsman 1991 Joined Industry 2014 PFT €2m FA 2006 €5m PFT 2002 PRSA 1967 Income Tax Act 1972 Finance Act TCA 1997 2010 €115,000 CAP Today Past FA 2006 Imputed Distribution ARF Pensions Levy introduced Pensions Act 1990 1998 NiPPI 2010 National Pensions Framework FA 2008 €150,000 CAP 2002 - €254k contribution CAP

4. Changes…. Negative ones • Fund threshold reduction • Dual income restrictions • Reduction in Earnings cap • Imputed distribution introduction • Pensions levy • Extension of State Pension Age • Increased Regulation raising costs • Restriction on overseas transfers • Restriction on lump sum • ARF - Increase tax on death • Loss of EE & ER PRSI relief Positive ones • Pensions Act (Preservation) • Introduction of ARFs • Introduction of PRSAs • Pensions Ombudsman • Relaxation of borrowing restrictions • Age related contribution limits

5. Recent Budget Changes • DIRT up to 41% plus PRSI of 4% • Exit tax up to 41% • Income tax remains at 41% • CGT remains at 33% • Funding Threshold reduced from €2.3 million to €2 millionPensions remain EXEMPT from investment taxes

6. Evolution of the Standard Fund Threshold

7. Evolution of the Standard Fund Threshold and Imputed Distribution €5,000,000 Limit on Pension Funds No Imputed Distribution €2,300,000 Limit on Pension Funds €2,000,000 Limit on Pension Funds 5% Imputed Distribution No Limit on Pension Funds    1999 ARF is born 1 January 2014 7 December 2010 7 December 2005 • €100,000,000 • €100,000,000 • €100,000,000

8. Origins of the €2,000,000 limit • New Age Related system for valuing defined benefits

9. Origins of the €2,000,000 limit New Age Related system for valuing defined benefits (€60,000 x 30) + €200,000 =€2,000,000

10. How the new Threshold will be implemented going forward All benefits valued using a capitalisation factor of 20 All benefits valued using age related capitalisation factors 1 January 2014 Before After Consultants with HSE pension need to take note of this!!

11. What happens if you have €2,001,000 • The chargeable excess which is liable to tax at 41% • €1,000 • €590 • This leaves €590 which would be transferred to the ARF • €283 • The ARF would be liable to tax, USC and PRSI meaning that the net proceeds would be €283 • The effective tax rate is 72%

12. So to be clear.… • Everyone in the room will be limited to a pension fund of €2m from 1st Jan 2014 (unless your fund is already higher and you have applied for your Personal Fund Threshold) • HSE Consultant - both HSE Pension and Private Pension income accessed – Benchmark all existing DB benefits before 1/1/2014 • GPs - both GMS and Private Pension income accessed

13. Pensions levy • “The levy – consider it gone, history, dead as a doornail, kaput, finito, buried – trust me” • 0.75% for 2014 • 0.15% for 2015 • Retire before 30 June • Postpone contributions until after this point

14. Now for the positives Tax relief at marginal rate on contributions • PRSA AVC contributions for GMS Pension • Private Pension Contributions Dual Income earners have to maximise contributions on their GMS earnings before funding through a Private Pension • Tax Free Growth on pension funds • Tax Free Lump on retirement • You can retire your private pensions anytime from age 60Spouses Pension funding

15. Why pensions still make sense…. • Tax relief up to earnings cap of €115,000 based on an age related limits • Tax Free Lump Sum of up to €200,000 with balance up to €500,000 taxable at 20% i.e. €200,000 Tax Free with €300,000 x 20%. • Tax Free Growth on Funds • Spouses Pension funding • Life cover can be set up for you and your spouse (if employed in the practice) and tax relief at 41% available on premiums

16. Tax Free Lump Sum • Applies to all - GP with GMS / Private Pension earnings or HSE consultant with HSE / Private Pension earnings • Total Tax Free Lump Sum of up to €200,000 from all pensions in your lifetime. • Balance above this up to €500,000 taxable at 20% i.e. €200,000 Tax Free with €300,000 x 20%. • Benefits from Private Pensions can be taken from age 60 all in one go or on a staggered basis.

17. Spousal Employment • Where one spouse carries out services in relation to the others employment • Opportunity to fund for Tax Free Lump Sum and ARF/Annuity Sch D Client Spouse PAYE If the spouse is aged 50 then you can contribute 200% of earnings PENSION

18. PRSA AVC Options • You can contribute to a PRSA AVC for your GMS earnings and receive tax relief • Options of a regular monthly or lump sum payment • You decide what fund / provider to choose from and can switch at any stage without penalty • Clear breakdown of all costs and charges • Range of funds to choose from asset classes • AVC options can be transferred to an ARF at retirement

19. Retirement Options - Annuity or ARF which option is best for you? • Prior to 1999 you had to take on Annuity at retirement…introduction of the ARF / AMRF Route • Annuity Rates which determine how much a pension pays are at an all time low • Low interest rates and Rising Life Expectancy are increasing cost to purchase an annuity • The odds of getting your money back are significantly reduced if inflation increases.

20. Annuity or ARF which option is best for you? Figures above based on a fund of €1000,000 Quote 1 - Level , single life, guaranteed 5 years annuity Quote 2 – Allows for indexation at 2% pa

21. Annuity or ARF which option is best for you? Payments discounted at 2% pa to convert them to today’s values. Pensioner mortality assumptions used in SORP (Statement of Reasonable Projection). * assuming future inflation of 2% pa 92 is the magic age; the projected age to which all our pensioners in this example must survive.

22. Annuity or ARF which option is best for you? Inflation Risk!!!! - Inflation is the real enemy of annuities. The figures suggest that about 60% of current buyers of annuities will not live long enough to get their money back in real terms, in annuity payments. *assuming future inflation of 3% pa

23. Annuity or ARF which option is best for you?

24. Annuity or ARF which option is best for you?

25. Annuity or ARF which option is best for you? • An annuity’s real value to retirees is that it provides certainty; come what may, they will receive a regular income in the post or into their bank account every month, for the rest of their lives….assuming annuity provider is solvent. • The figures suggest that at current annuity rates consumers are paying a high price for this insurance and are left very exposed to the inflation risk. • ARF holders sitting on cash deposits or low risk funds waiting for annuity rates to increase may be shooting themselves in the foot. • Get proper advice

26. Why pensions still make sense…. • Tax relief still available • Tax Free Lump Sum • Tax Free Growth on Funds • Spouses Pension funding with Employer Funding • Life cover can be set up for you and your spouse (if employed in the practice) and tax relief at 41% available on premiums • Most tax efficient way to save

27. Conclusion…. A Greater need than ever for the right advice and a Trusted Advisor Questions