0. UNIVERSITY OF LIMERICK ADDITIONAL VOLUNTARY CONTRIBUTIONS
April 2015
Jim O'Neill MIIPM QFA, FLIA

1. Agenda Main scheme pension benefits
Additional Voluntary Contributions (AVCs)
Investment Considerations
Questions
16 April 2017

2. 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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3. 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
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4. 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)
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5. Example Pensionable service by retirement age: 40 yrs
Pensionable remuneration €60,000 p.a.
State pension (Contributory) € X €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
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6. Why Should You Consider Making AVC’s
Short Service
Cost Neutral Early Retirement
Tax Free Lump Sum
Extra Flexibility-Approved Retirement Fund (ARF)
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7. 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
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8. 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
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9. 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%
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10. Tax Relief Example of Tax Relief on AVC Contributions Income Tax Rate
20%
40%
Gross Monthly Contributions
€200.00
Less income tax relief
€40.00
€80.00
Actual monthly cost
€160.00
€120.00
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11. 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)
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12. 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
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13. 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 NONE Yes 30% Income Tax
CHILD UNDER POTENTIAL NONE
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14. 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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15. Investment Considerations

16. 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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17. 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.
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18. 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 %
Secured Performance Fund (closed) %
Capital Protection Fund %
Exempt Consensus Fund %
Exempt Active Managed Fund %
Diversified Balanced Fund %
Indexed 50/50 Equity Fund %
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19. Question Time
16 April 2017

20. FURTHER INFORMATION CONTACT Jim O’Neill Mercer Mobile: 087-2205176
16 April 2017