Executive Pension Account Live life your way

Transcription

1 Executive Pension Account Live life your way

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3 Contents Introduction 4 A Closer Look At Our Executive Pension Account 5 Tax Benefits 7 Contributing to an Executive Pension Account 9 Investment Options 10 Retirement Options 12 Employer Benefits 16 FAQs for Employees 17 3

4 Introduction Executive Pension Plans are taken out by Employers to provide for the retirement of executive and key employees. They are set up under Trust. The Employer normally acts as Trustee. Both employer and employee can make contributions, but it is a Revenue requirement that the employer must make a meaningful contribution on an ongoing basis. As an Employee Your pension is an essential part of your financial planning. The tax-relief and long-term nature of a pension make it an excellent retirement planning tool. An Executive Pension Plan provides you with a plan for retirement and can be a tax efficient way for your employer to provide you with employment benefits. It is never too late to benefit Executive Pension Plans provide generous tax incentives. Depending on your age, you may be able to contribute up to 40%* of your income into an Executive Pension Plan and claim full tax relief. Planning for your retirement When thinking about the type of pension pot you d like to have, a big contributing factor will be the age at which you want to retire. Another factor worth noting is the age at which you may qualify for the state pension may have changed by the time you reach your normal retirement age. The Government have increased the age at which most people will now be eligible to claim the State Pension (Contributory). Private/occupational pension arrangements are becoming more important as the State Pension qualifying ages are due to increase. State Pension (Contributory) qualifying ages Provided you have made the required number of social insurance contributions to qualify for the State Pension (Contributory); l If you were born between 1st January 1949 and 31st December 1954 inclusive, the qualifying State Pension age will be 66. l If you were born between 1st January 1955 and 31st December 1960 inclusive, the qualifying State Pension age will be 67. l If you were born on or after 1st January 1961 the qualifying State Pension age will be 68. * An annual earnings cap of 115,000 will apply to an employee s pension contributions for the purposes of tax relief. It should, however, be noted that in certain circumstances contributions may have to be restricted in order to ensure that Revenue limits are not exceeded. It is important to note that tax relief is not automatically granted. Revenue requirements must be satisfied. 4

5 A Closer Look at our Executive Pension Account A Bank of Ireland Life Executive Pension Account provides employees with choice and control over how to plan for their retirement. There are a number of reasons to consider Bank of Ireland Life: For Employees - A strong range of fund choice l Executive Pension clients have a choice of up to 40 Funds that provide; l A wide range of investment categories l Diversifi cation across geographic regions and asset classes l A choice of risk from low to very high These Funds are managed by various teams of global and national Fund Managers and allow you and your trustee build a bespoke pension investment portfolio around your individual needs. A specially selected default investment strategy Within our Executive Pension Account we have a specially selected default investment strategy. This aims to maximise growth in the early years, when you have more time before you retire and then move to more secure funds as you near retirement. This helps protect the value of your pension pot and its purchasing power at retirement. In addition, you don t have to make any complicated decisions about what funds to invest in, or when you should switch from investing in equities to fi xed interest bonds and cash. This is taken care of for you so you don t need to worry. Please note this default investment strategy may not be a suitable option if you want to avail of the Approved Retirement Fund (ARF) option at retirement. Talk to your Insurance and Investment Manager for more information. Access to the scale and expertise of our Fund managers Our commitment to keep you informed Each year (or at your request) you will receive a Statement of Reasonable Projection (SORP) outlining your current Fund value. This statement will also provide a projected future value assuming contributions continue to be paid at existing levels. In addition, Fund performance information is available on our Fund Centre. Visit reland.com/fund-centre for up to date fund information. Fund prices/performance are updated daily. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. 5

6 Security from a trusted provider Year after year more people trust Bank of Ireland Life with their pension funds. We offer security as the benefits provided under your Executive Pension Account are set up under trust where the pension assets are held separate from the assets of the business. For Employers - Executive Pension Accounts are also an excellent retention tool Year after year more people trust Bank of Ireland Life with their pension funds. We offer security as the benefits provided under your Executive Pension Account are set up under trust where the pension assets are held separate from the assets of the business. 6

7 Tax Benefits Executive Pension Accounts provide excellent tax benefits to both the employer and employees. For Employers Tax relief for the company Contributions made by the company into an Executive Pension Account can usually be offset against Corporation Tax as an allowable business expense (subject to Revenue limits). Bank of Ireland Life s Executive Pension Account offers considerable flexibility in relation to the timing of a company s contributions to the Plan. The company can choose to make regular contributions to the Plan and /or lump sum payments to tie in with your company s profitability subject to Revenue terms and conditions. For Employees Generous tax relief for you You can also benefit from tax relief on any personal contributions you make. Tax relief is normally available at your marginal rate of tax up to a maximum of 40%* of earnings each year, depending on your age. This reduces the net cost of your pension contributions considerably % of earnings 50% 40% 35% 40% 30% 25% 30% 20% 10% 15% 20% 0 Under & Over Your Age in the Year of Payment * An annual earnings cap of 115,000 will apply to an employee s pension contributions for the purposes of tax relief. It should however be noted that in certain circumstances your contributions may have to be restricted in order to ensure that Revenue limits are not exceeded. It is important to note that tax relief is not automatically granted. Revenue requirements must be satisfied. 7

8 Attractive tax free investment growth There is a temporary government levy of 0.6% p.a. on pension fund assets until The Fund in which contributions are invested benefits from tax-free growth, unlike most other saving methods which may be liable for tax. You can retire with a lump sum You can take 25% of the fund as a lump sum at retirement or in some cases 1.5 times your final salary. Employees can only avail of the 1.5 times salary option if they have 20 years service at normal retirement age with the company and intend using the balance of their retirement fund to purchase an annuity (i.e. a pension for life). A maximum of 200,000 can be taken tax-free. Ceiling on maximum pension fund There is a limit on the maximum pension fund that you can build up by retirement. With effect from 7th December 2010 this limit was set at 2,300,000. This includes funds from all pension arrangements, and also includes the capital value of any pension rights which have already been drawn down since 7th December Where this limit is exceeded, the excess in pension funds at retirement is subject to a once-off income tax charge at the rate of 41%. 8

9 Contributing to an Executive Pension Account In general we recommend that employees make the maximum pension contributions they can afford. For the Employee l You can fund for a maximum pension of up to two thirds of your final salary at normal retirement age, provided the necessary level of contributions have been made (combining employer and employer contributions) and that you have drawn a salary from the company for at least 10 years. l You may have the option of funding for a pension for your spouse/civil partner, payable on your death in retirement. Talk to your Insurance and Investments Manager for more details. l Contributions are flexible as you can make Additional Voluntary Contributions (AVCs) at any time. Contributions can be made on a monthly basis. In addition, annual single payments can be made by the employee and the company/business at any time. - You can increase or decrease your AVCs at any time. - You can also make lump sum contributions at any time. Your pension contributions may qualify for generous tax relief. For the Employer l The company must make a meaningful contribution on an ongoing basis. l Our popular indexing contribution option is a great way to help your employees pension contributions keep pace with inflation. It automatically increases contributions on an annual basis by 3%. Please note that the minimum contribution to a Bank of Ireland Life Executive Pension Account is currently just 100 a month. Remember the company must also make a meaningful contribution. 9

10 Investment Options When it comes to investing in a pension, Bank of Ireland Life have brought together a wide range of investment options to give you great choice and quality. You can choose the range of Funds most likely to fit your attitude to risk. Information on all our Funds are available on For details of which Funds to choose from talk to your broker of financial advisor. You should also consult with the Trustees about the choice of investment Funds available and whether investment choice is available to the employee. How do I decide where to invest? There are two broad approaches to investing, you can; 1. Invest in our default investment strategy (IRIS) or Our range of Funds offers different types of investors a solution to their retirement planning needs. 2. Choose from our extensive range of Funds (and Fund Managers). Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. 10

11 1. Default investment strategy (IRIS) Bank of Ireland Life has designed an Individual Retirement Investment Strategy (IRIS). This is a Lifestyle fund and operates in a way that aims to maximise growth in the early years when employees have more time before retirement and then automatically moves to more secure funds as they near retirement age to protect the value of their pension pot, and its ability to provide a pension. For example, if you are only a couple of years away from retirement, you may want more security to maintain the purchasing power of your retirement fund. The key benefit of IRIS is that you don t have to make any complicated decisions about what funds to invest in, or when you should switch from investing in equities to fixed interest bonds and cash. This is taken care of for you. Please note this default investment strategy may not be a suitable option if you want to avail of the Approved Retirement Fund (ARF) option at retirement. Talk to your Insurance and Investments Manager for more information. 2. Choose from a selection of Funds and Fund Managers We offer a range of Funds to suit many different investor types. Depending on which Fund you invest in, its value can fall as well as rise over the period of the investment. By choosing a low-risk investment, you are protecting the amount you invest but the potential for gain is lower than if you choose a higher-risk investment. Higher-risk investments place more focus on growth and less on protecting the amount you invest. In choosing the investment that is right for you, you should consider; l The amount of risk you are willing to take; l How much time until your retirement; and l If you want to choose your own funds or select the default investment strategy. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. 11

12 Retirement Options Under current legislation you can choose from the following four options on retirement: 1. A retirement lump sum 2. Purchase an annuity (pension for life) 3. Invest in an Approved Retirement Fund (ARF) 4. Take an additional taxable lump sum 1. Your Retirement Lump Sum The amount of money you can take as a retirement lump sum will be subject to Revenue limits. Option A The maximum amount of lump sum that you can take is 1½ times your final salary, provided you have 20 years service at normal retirement age. The precise factor will depend on how long you have been employed and have been paid a salary from the company. If you opt to take your lump sum in this way you must purchase an annuity with the balance of your fund. Option B As an alternative to Option A you may opt to take a retirement lump sum of 25% of the fund when you retire. If you choose this option, you must invest the balance of your fund in an Approved Retirement Fund (ARF) or take the balance as a taxable lump sum (subject to the criteria set out in page 14/15). The following illustrates the tax position of your retirement lump sum: Lump Sum Amount* Rate of Tax Up to 200,000 Tax Free Next 375,000 Standard rate (currently 20%) no reliefs, credits allowed 575,001 and over Marginal rate taxed under PAYE system, plus PRSI and USC * Any Tax Free Lump Sum taken on or after the 7th of December 2005 will count towards this limit. You can talk to a Insurance and Investments Manager when close to retirement to choose the options that best suit you. 12

13 The following factors will influence the level of benefits you may receive from your Executive Pension Account at retirement: l Your level of contributions l Your company s level of contributions l The investment performance of your chosen fund/funds l The age at which you take your benefits l The level of annuity rates when you take your benefits If you want to purchase an annuity, you can match the features to your needs and choose the options that best suit you. 2. Purchase an Annuity (Pension for Life) Subject to the retirement lump sum chosen by you (as described previously), the balance of the fund can be used to purchase an annuity. Purchasing an annuity will provide you with a secure income for the rest of your life. You can choose to have: 1a. Level Payment: Where you have a level amount of income for the rest of your life. OR 1b. Increasing Payment: Where your income increases each year by a specific fixed amount, eg 2% each year. 2. Mortality Protection Period: You can choose that your payments are secured for a fixed period of up to 10 years, so that if you die during this time, your annuity payments will continue to be paid to your dependants. 3. Dependant s Pension: At the outset you can specify a percentage of your pension that will continue to be paid should you die in retirement to your spouse/civil partner or dependant. 13

14 3. Invest in an Approved Retirement Fund (ARF) An Approved Retirement Fund (ARF) is a flexible arrangement that allows you to continue to invest in Funds after retirement and withdraw money as and when you wish. To choose an ARF, you must have a specified pension income of 18,000 per annum. If you don t, you will have to invest 119,800 in an Approved Minimum Retirement Fund (AMRF) or an annuity or combination of both. If your retirement fund (after lump sum) is less than 119,800 (2012 figures), then the whole amount must be used in this way. An ARF allows you to: l Make withdrawals when you want (though the frequency and size of your withdrawals will impact the length of time your ARF can provide you with an income in retirement) l Receive a Regular Income from your ARF l Pass on the value of the fund if you die. Legislation provides that tax is to be paid on an annual deemed distribution from your ARF each year. Any withdrawals made from your ARF during the year can count towards this annual deemed distribution. In practice we will make a withdrawal of a certain amount from your ARF each year, deduct the appropriate tax on your behalf and pay you the balance. An AMRF is similar to an ARF but there is a maximum investment amount for an AMRF, which is set by Revenue. An individual can only ever have one AMRF. They cannot withdraw from the original capital invested, but investment growth (if any) can be withdrawn at any time subject to taxation. 14

15 An AMRF becomes an ARF on the earliest of: l When you reach age 75; l If you satisfy the minimum guaranteed pension income requirement as set out by the Revenue before age 75; or l If you die before age 75. An ARF or AMRF can be converted to an annuity at any time. What are the risks of an ARF? When you purchase a pension, you have the comfort of a secure income for the remainder of your life. However, when you buy an ARF, there is no guaranteed income and the length of time that your fund will be available depends on the withdrawals you make and the investment performance of your Fund or Funds. For example, if a high level of withdrawals were made by you relative to the growth achieved, there is a risk that your fund could run out before death - and the longer you live, the greater the chances are of this happening. You should also note that, in order to achieve good returns, it is likely that an ARF will invest at least partly in assets such as equities and property. The value of these assets may fall as well as rise, particularly in the short term. 4. Take an additional taxable lump sum At retirement, you may take an additional taxable lump sum provided that you are aged at least 75 at the time or have a guaranteed pension income of at least 18,000 per annum, or have already invested 119,800 in an AMRF, annuity or combination of both, subject to the same conditions as accessing an ARF You have to satisfy certain restrictions to purchase an ARF or take taxable cash. You should talk to your Insurance and Investments Manager about your options. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. 15

16 Employer Benefits Executive Pension Accounts can be used as a tax efficient way to reward and retain key employees Some businesses are created around a few key people whose knowledge and experience make them a very valuable asset. The Bank of Ireland Life Executive Pension Account is an excellent way to reward an important member of your staff and to encourage them to consider a long term future with your company. It can also be useful in attracting new staff, especially when you consider that in today s competitive environment, employee benefits are becoming increasingly important in attracting and retaining the best people. Our Executive Pension Account is essentially a tax efficient savings plan that builds up a Fund, which allows a company like yours to provide retirement benefits for its key employees. The Plan is flexible and can be designed to suit your own particular requirements. For instance: l You decide the level of company contributions, subject to Revenue limits. l The Plan can be non-contributory or you can arrange for part of the contributions to be paid by the employee. l The employee can then pay additional voluntary contributions to provide additional benefits for themselves. For more information talk to your Insurance and Investments Manager or log on to our website 16

17 FAQs for Employees What happens if I die before retirement age? If you die before retirement, the full accumulated value of the policy will be used to provide benefits for your dependants. These benefits may take the form of a lump sum payment and/or an income for life. The maximum lump sum payable on death in service is four times earnings at the date of death plus a refund of the value of any employee (including AVC) contributions. Should the death in service benefit exceed this amount, the excess must be used to provide an income for your dependants. What happens to my fund if I die in retirement? A pension will continue to be paid after your death if you have opted for either of the following choices: l An annuity with a mortality protection period (of up to 10 years) where death occurs before this period elapsed. l An annuity with the provision for a spouse / civil partner / dependant s pension to be paid on death. For those who choose to invest in an ARF the remaining value of the ARF can pass to your spouse/ dependants. Depending on what option is chosen, tax may be payable. 17

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20 Terms and conditions apply. Benefits are subject to underwriting and acceptance by Bank of Ireland Life. The information contained in this document is based on our understanding of current legislation and Revenue practice as at July While great care has been taken in its preparation, this brochure is of general nature and should not be relied on in relation to a specific issue without taking financial, insurance or other professional advice. This document is for information purposes only and does not constitute an offer or recommendation to buy or sell any investment or to subscribe to any investment management or advisory service. If any conflict arises between this brochure and the Policy Conditions, the Policy Conditions will apply. Warning: This product may be affected by changes in currency exchange rates. Warning: The value of your investment may go down as well as up. Warning: If you invest in this product you may lose some or all of the money you invest. Bank of Ireland Life is a trading name of New Ireland Assurance Company plc. New Ireland Assurance Company plc trading as Bank of Ireland Life is regulated by the Central Bank of Ireland. Bank of Ireland Insurance & Investments Limited is regulated by the Central Bank of Ireland. Bank of Ireland Insurance & Investments Limited is a tied agent of New Ireland Assurance Company plc. Members of Bank of Ireland Group V