UNIVERSITY OF LIMERICK

Transcription

1 UNIVERSITY OF LIMERICK Additional Voluntary Contribution Plan - AVC November 2015 Tom O Halloran

2 WHAT WE LL COVER TODAY How do the Plans work? Why should you consider making AVCs? What are your benefits from the AVC Plan? Do you need to make investment decisions? How can we help you make the right decisions? PLEASE NOTE! This presentation does not provide you with personal financial advice in relation to your investment choices

3 WHAT YOUR AVC PLAN DOES FOR YOU Enables you to save to maximise your retirement lump sum Allows you increase your regular income in retirement Pay less tax: you get tax relief on your AVCs Tax free investment growth N.B. It is important to understand your main scheme retirement benefits when considering making AVCs

4 WHO S WHO? TRUSTEES: Irish Pensions Trust Ltd Act within the terms of the Deed and Rules and also act in the best interest of the members ADMINISTRATOR: Irish Life Responsible for day-to-day administration of the Plan Hold records, produce benefits statements, produce annual report INVESTMENT MANAGER: Irish Life Invest & manage monies in your retirement Plan for you CONSULTANT: Mercer Advisor to the employer and to the members

5 YOU YOU YOU decide if you should make AVCs decide how to invest your savings choose your benefits

6 GETTING STARTED HOW DO THE PLANS WORK?

7 MAIN PLAN AVC PLAN HOW DOES PLAN WORK? THE AVC PLAN Your AVCs are invested with aim of growing in value over time The value of your AVC Account is used to buy your choice of benefits CASH LUMP SUM OR INCOME IN RETIREMENT ENHANCED INCOME LUMP SUM & OR ARF / AMRF LUMP SUM INCOME IN RETIREMENT CASH LUMP SUM Pre- retirement Post retirement

8 STEP 1 CONTRIBUTING AVCs

9 CONTRIBUTING TO THE PLAN GETTING TAX RELIEF You get tax relief at your marginal rate How much would it cost you to contribute 100? Higher Rate Tax Payer: 40% Standard Rate Tax Payer: 20%

10 CONTRIBUTING AVCs You can make regular AVCs a percentage of your Salary or an amount each month and/or You can make a once-off AVC payment often used to maximise your tax savings for the year

11 CONTRIBUTING TO THE PLAN MAXIMUM LIMITS FOR TAX RELIEF You may pay contributions up to the Revenue limits, in any one tax year. The current Revenue limits are: AGE PERCENTAGE OF TOTAL TAXABLE INCOME Up to 29 15% % % % % % Current earnings cap of 115,000 for tax relief applies.

12 STEP 2 GROWING YOUR ACCUMULATED AVCs

13 The longer you wait to make AVCS, the less time your savings have to grow Yellow contributes 5,000 p.a. from age 50 Blue contributes 3,000 p.a. from age 40 Both members contribute 75,000 total AVCs Savings 96,091 Income 3,844 p.a. Savings 86,467 Income 3,459 p.a Assumptions: Total AVCs 75,000, Annual real investment return 2%, drawing down at age 65, Annuity Rate 25:1

14 WHAT SHOULD YOU CONSIDER WHEN MAKING INVESTMENT DECISIONS? Your personal circumstances Your investment timeframe Your attitude to risk Your attitude to short-term loss Your retirement objectives Do you know which fund(s) your contributions are invested in?

15 GROWING YOUR RETIREMENT ACCOUNT THE FUNCTION OF DIFFERENT INVESTMENT OPTIONS GROWTH OPTIONS are more volatile but potentially generate more return CONSERVATIVE OPTIONS are less volatile and potentially generate lower returns

16 CHOOSING INVESTMENTS FOR YOUR TIME TO RETIREMENT RISK AND REWARD OVER TIME It s important to aim for growth in the long term And equally important to protect your savings as you approach retirement It can be good practice to reduce risk as you get close to retirement What if you were retiring here?

17 STEP 3 SELECTING YOUR BENEFITS

18 SELECTING YOUR BENEFITS WHEN YOU RETIRE Use the value of your Accumulated AVCs to fund a combination of benefit options, where applicable: Additional Tax Free Cash Lump Sum* Additional tax free Cash Lump Sum* + Enhanced retirement Income Additional Tax Free Cash Lump Sum* + Balance invested in an Approved Retirement Fund * Up to maximum revenue limits allowable

19 MAIN PLAN AVC PLAN SELECTING YOUR BENEFITS WHEN YOU RETIRE Use the value of your Accumulated AVCs to fund a combination of benefit options, - Maximise Cash lump sum AVC ACCOUNT VALUE ARF / AMRF CASH LUMP SUM CASH LUMP SUM INCOME IN RETIREMENT & CASH LUMP SUM RETIREMENT BENEFIT OPTIONS

20 MAIN PLAN AVC PLAN SELECTING YOUR BENEFITS WHEN YOU RETIRE Use the value of your Accumulated AVCs to fund a combination of benefit options, Cash plus income (annuity) AVC ACCOUNT VALUE CASH LUMP SUM + ENHANCED ARF / MRF INCOME IN RETIREMENT INCOME IN RETIREMENT & CASH LUMP SUM RETIREMENT BENEFIT OPTIONS

21 MAIN PLAN AVC PLAN SELECTING YOUR BENEFITS WHEN YOU RETIRE Use the value of your Accumulated AVCs to fund a combination of benefit options, Cash plus ARF / AMRF AVC ACCOUNT VALUE CASH LUMP SUM + ARF / MRF ARF / AMRF INCOME IN RETIREMENT & CASH LUMP SUM RETIREMENT BENEFIT OPTIONS

22 LINK BETWEEN INVESTMENT CHOICES AND RETIREMENT BENEFITS Annuity Cash ARF / AMRF Investment strategy should reflect your likely retirement benefits Pattern of retirement benefits in Ireland: Everyone takes a cash lump sum Many purchase an annuity Some stay invested via an Approved Retirement Fund (ARF) Your investment strategy should facilitate safe arrival at your chosen destination 21

23 Personal Lifestyle Strategy

24 PENSIONS INVESTMENTS LIFE INSURANCE Irish Life Corporate Business Investment Overview November 2015

25 Overview Pension Plan Investment Objectives Asset Classes Default Options & Life-styling Investment Risk Profiles Equities & Market Returns Global Equity Outlook Global Economy Outlook Summary 24 PENSIONS INVESTMENTS LIFE INSURANCE

26 Pension Plan Investment Objectives Impact of a Higher Returns In this example achieving an investment return of 6%p.a. produces a pension fund at retirement more than 50% higher than one earning a return of just 4%p.a. 25 Source: Pensions Authority Website. PENSIONS INVESTMENTS LIFE INSURANCE

27 Asset Classes Jargon Busting Equities Generally refers to the buying and holding of stock on a stock market Property Commercial buildings, i.e. office, retail and industrial units Bonds Bond issued by Governments, usually within the Eurozone. Cash Money on deposit with a variety of banks for different lengths of time. 26 PENSIONS INVESTMENTS LIFE INSURANCE

28 Pension Default Options Default Investment Option This is an investment option that is used defined contribution schemes if you do not exercise your own right to choose how your fund is invested. Life-styling is an approach often chosen as a default investment option. Life-styling Generally this means that contributions are invested heavily in Equities and Property at a younger age before gradually switching to Bonds and Cash as you near retirement 27 PENSIONS INVESTMENTS LIFE INSURANCE

29 Investment Risk Profiles Very Cautious Balanced Experienced 28 - Preference to Protect Investment - Not willing to accept ups and downs in value of funds Options: Cash & Capital Protected Funds - Preference for solid long term growth - Willing to accept some ups and downs in value of funds Options: Mixture of Shares, Bonds, Property, Commodities, Cash - Preference of high long term growth - Willing to accept significant ups and downs in value of funds Options: Property & Shares PENSIONS INVESTMENTS LIFE INSURANCE

30 Why Equities? $100 US Dollars invested in 1925 in: Equity Bonds T-Bills(Cash) 29 Equities have significantly outperformed the other asset classes in the period PENSIONS INVESTMENTS LIFE INSURANCE

31 Equity Returns 30 PENSIONS INVESTMENTS LIFE INSURANCE

32 Equity Returns World Performance since 1996 Year Return % % % % % % % % % % Year Return % % % % % % % % % % 31 Source: MSCI Inc. These returns are an based on 1,643 world stocks PENSIONS INVESTMENTS LIFE INSURANCE

33 Equity Summary Equities form a key part of a life-style strategy Common for life-style strategies to be the scheme default. This will aim for investment growth when the member is younger before phasing them out of equities and into lower risk funds as they move towards retirement. An investor in a pension scheme has alternatives to equities that cab be either low risk (cash) or high risk (property). Historic equity performance is positive but has had significant volatile periods. 32 PENSIONS INVESTMENTS LIFE INSURANCE

34 Global Equity Outlook 2016 Forecasting midsingle to high-single digit returns Global Economic Growth of 2.5-3% Low inflation & interest rates by historic standards Likely to remain volatile for 12 months Election cycles in Europe & US can lead to uncertainty 33 PENSIONS INVESTMENTS LIFE INSURANCE

35 Global Economy Update USA Weather related contraction in Q addressed in 2015 Election uncertainty for 2016 Japan Fiscal & Monetary Stimulus Programmes successful Introduced sales tax rise of 3% UK Eurozone China Strong Retail Sales & Consumption in 2015 Predicting growth of 3% in 2015 Recovery stalled in 2014 due to Ukraine uncertainties Strong business sentiment in 2015 will lead to small growth Growth of 7% YTD Some doubts over validity of data released 34 PENSIONS INVESTMENTS LIFE INSURANCE

36 Eurozone GDP Growth 1% Eurozone Real GDP Grow th Gross domestic product at market prices, (ESA 2010), Mil of EUR (chained 2010 prices), SA, WDA - Euro area (19 countries) 0.8% 0.6% 0.4% % 0% -0.2% -0.4% -0.6% '11 '12 '13 '14 35 PENSIONS INVESTMENTS LIFE INSURANCE

37 Irish Employment Growth 36 PENSIONS INVESTMENTS LIFE INSURANCE

38 Summary 37 Investment returns can make a significant different to a members fund at retirement Default Funds chosen by schemes attempt to ensure investment growth for members. A Life-style approach as a default will attempt to phase member funds into safer funds to lock away investment growth as they get closer to retirement. Equities have performed strongly historically but have also incurred significant losses during certain periods. Global outlook appears to be positive but uncertainty remains in relation to China and could lead to increased volatility in performance. PENSIONS INVESTMENTS LIFE INSURANCE

39 The key to success... What income do you want in retirement Find out are you on track Do you need to save more? Review from time to time to ensure you stay on track!

40 Keeping on track... Goal-setting and Retirement Planning Tools

41

42

43 My Pension App Free to download from the App Store or mypensionapp.ie

44 New Fund Centre App The new investment app called Fund Centre is now available for Apple and Android devices Quick access to stay up to date Fund performance and charting tool Factsheets Add funds to your favorites Search facility

45 My Projection Estimated value of your fund at retirement Estimated pension at retirement Impact of making AVCs

46 Easy to use Pension Calculator Are you saving the right amount? Do you need to do more?

47 Estimated figures in terms of money today Works out your Lump Sum Includes State Pension to show overall income in retirement

48 Investment Centre Factsheets for all funds Fund Performance Figures Market Commentaries

49 Investment Centre Factsheets for all funds Fund Performance Figures Market Commentaries

50 OVER TO

51 Mercer (Ireland) Ltd., trading as Mercer, is regulated by the Central Bank of Ireland. Registered Office: Charlotte House, Charlemont Street, Dublin 2. Registered in Ireland No Directors: Tom Geraghty, Vincent Sheridan, Tom Brennan.