a medical professional’s · 2019-07-02 · charges on non-standard prsas are not capped and, may...

A Medical Professional’s Guide to PRSA AVCs

Simple PRSA AVC

Select PRSA AVC

Helping people save for the future and manage the risks of everyday life

Life is complex and unpredictable. People face uncertainty and challenges every day. We’re here to help you look forward to the future with confidence. With over 33 million customers in 16 countries worldwide1, we want to make a difference to you, to allow you to achieve your financial goals. We’ve been meeting the needs of our Irish customers since 1908. Today we’re a leading Life & Pensions company in Ireland, with offices in Dublin, Cork and Galway.

1. Source: www.aviva.com 11 September 2017.

We are Aviva

Contents

What is a PRSA? 1

Eligibility and payments 3

What can we offer? 4

Charges 4

Tax benefits 5

Aviva - your natural choice for investments 8

Additional Voluntary Contributions 10

What funds can I choose? 11

Default investment strategy 12

At retirement 17

Your questions answered 21

A commitment to quality service 25

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AN INDIVIDUAL’S GUIDE TO PRSAs

What is a PRSA?

A PRSA is a way of helping people provide for their retirement by saving now. It is a long term investment product sold by financial institutions and intermediaries. It allows you to create a pension fund for yourself when you retire and you can vary the amount you pay into it over time. You can switch from one PRSA to another at any time free of charge.

Types of PRSAThere are two types of PRSA:

Standard PRSA where the charges you have to pay are capped i.e. there is a maximum level of charges allowed and there are certain investment restrictions on how your money is invested.

Non-Standard PRSA where there is no maximum level of charges and there are fewer investment restrictions.

Have you considered making Additional Voluntary Contributions through a Personal Retirement Savings Account? Many medical professional are unaware of the attractive benefits that apply to making Additional Voluntary Contributions.

If you are a GP and a member of the GMS Scheme did you know?

• Its possible to reduce your income tax bill each year by making Additional Voluntary Contributions (AVCs) in relation to your GMS Income

• You have the opportunity to make those contributions to a PRSA AVC

• The advantages of making AVC contributions to a PRSA AVC rather than the main scheme is that you can diversify your risk and have complete control of how your fund is invested

• Depending on how you access your benefits when you retire you may be able to take some or all of your AVC fund as a lump sum

• When you retire and access your benefits you do not have to purchase a pension income payable for life with your AVC Fund but can also purchase an AMRF/ARF

• An AMRF/ARF gives you complete control and flexibility when you draw down your retirement fund

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If you are an employee of the HSE did you know?

• Its possible to reduce your income tax bill each year by making Additional Voluntary Contributions (AVCs) in relation to your HSE Income

• You have the opportunity to make those contributions to a PRSA AVC

• The advantages of making AVC contributions to a PRSA AVC rather than the AVC scheme is that you can diversify your risk and have complete control of how your fund is invested

• Depending on how you access your benefits when you retire you may be able to take some or all of your AVC fund as a lump sum

• When you retire and access your benefits you do not have to purchase a pension income payable for life with your AVC Fund but can also purchase an AMRF/ARF


If you are a Self Employed Individual or working in a private practice did you know?

• Its possible to reduce your income tax bill by making pension contributions to a PRSA or Personal Pension Plan (PPP)

• When you retire and access your benefits you do not have to purchase a pension income payable for life with your Fund but can also purchase an AMRF/ARF


What type of PRSA is best for you? A Standard PRSA is likely to meet the requirements of most people who want a PRSA. You cannot be charged more than the maximum level of charges allowed (5% of contributions paid and 1% per year of the PRSA assets).

The level of charges is very important. Charges reduce the fund you can build up. The size of your fund on retirement will depend on your contributions and the Investment performance less the charges deducted. Investment performance cannot be predicted, and higher charges create a need to produce a better investment performance just to remain level with products carrying lower charges.

Charges on Non-Standard PRSAs are not capped and, may be higher than on Standard PRSAs.

Another difference between Standard and Non-Standard PRSAs is in the way in which your money is invested. A Standard PRSA invests only in pooled funds, where the risk is spread across a large number and type of investments. A Non-Standard PRSA can offer you a wider investment choice. If a Non-Standard PRSA is offered to you on the basis of the investment choice it gives you, you need to be sure that you understand the investment choices, and that you understand why you need them. This is your pension, your income in your retirement years. If you do not understand how your pension will be invested then perhaps you should consider again if this particular product is the one for you.

You should keep the level of your contributions and the investment performance of your PRSA under regular review, so you can see if your PRSA will provide you with the pension you need.

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Tax benefits

What help do I get from the Taxman?

One of the current advantages to a pension over other forms of saving is the assistance you get from the government. The government recognises that they have a duty to help people provide for their retirement and one of the ways they help is through the provision of tax relief.

If you make a contribution to a PRSA AVC you can benefit from Income Tax relief (subject to Revenue limits). The tax relief you receive reduces the real cost of the contribution you make to the plan.

So, if we take the two simple examples below we can see that a ‘gross’ PRSA AVC contribution of €100 may only have a ‘net’ cost of €60 for someone who is in the 40% tax band or €80 for someone in the 20% tax band. Therefore, the government is giving you extra to help provide for your retirement.

40% taxpayer 20% taxpayer

Gross monthly pension contribution €100 €100

Less Income Tax relief €40 €20

Net cost of pension contribution to the employee €60 €80

Note: To be classified as a 40% taxpayer you must earn more than€34,550 as a single person or €43,550 as a married couple with one income.

In the case of any regular contributions you might make, these can be taken directly from your gross salary via payroll deduction, therefore allowing income tax relief at source. Please note the Universal Social Charge (USC) and PRSI applies to your gross salary before deductions for your contributions.

A contributor making a gross contribution of €10020% Taxpayer 40% Taxpayer

If you are paying income tax and don’t contribute to a pension, you’ll lose this valuable benefit.

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Does my Tax Relief vary?Your contributions to a PRSA AVC will be eligible for income tax relief up to the current maximum annual contribution limits shown in the table below. These limits will vary with your age and your earnings.

Your Age Maximum Tax Relief as a percentage of your earnings

Under 30 15%30 – 39 20%40 – 49 25%50 – 54 30%55 – 59 35%

60 and over 40%

1. The above limits apply to the total personal contributions paid by you into your PRSA AVC and other pensions.

2. The maximum earnings on which tax relief can be claimed is €115,000 (January 2018).

3. You can claim tax relief on a contribution of up to €1,525 per annum regardless of age or earnings, except where you are a member of an occupational pension plan.

How do I get tax relief?

How you get tax relief will depend on how your contributions are paid into your PRSA AVC.

You can contribute directly to your PRSA AVC through your bank account.

If you pay your contributions directly to Aviva Life & Pensions Ireland DAC, we will send you a PRSA AVC Certificate shortly after your PRSA AVC starts, stating the contributions that you have agreed to pay. If you are taxed under the PAYE system, you should forward the Certificate as soon as you can to your Tax Inspector.

Other valuable tax benefits

The PRSA enables you to enjoy two other important tax benefits:

• Tax-free growth for your money - your contributions are invested in our pension funds, which pay no tax on any investment returns*. A fund that pays no tax should provide a valuable boost to your savings.

• Tax–free cash at retirement - when you retire, you can take a tax-free cash lump sum from your PRSA AVC (subject to a lifetime limit of e200,000).

Please remember that the total of your pension funds and the total tax-free cash lump sum that you may draw are both subject to limits – with any excess being subject to tax.

* Although it may not be possible to reclaim certain foreign and withholding taxes.

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Award winning funds from world-class managersWe believe we offer funds from some of the best Fund Managers in the world who have won multiple awards for their expertise, track record and innovation. With operations spanning a range of countries and asset classes worldwide, Aviva Investors and Legal & General Investment Management (LGIM) bring you the benefits of global scale and expertise. Merrion Investment Managers brings you the benefits of local expertise.

Choice and flexibility

Managed FOR You - A simpler way to investOur range of ready-made funds that focus on delivering the outcomes that matter most to you, whether that’s targeting risk, targeting income or targeting return.

Managed BY You - You’re in controlBuild and monitor your own portfolio by selecting funds from our full range. You have a choice of funds across asset classes and risk profiles with active and passive choices.

For more information on our wide range of funds, you can read our ‘Your Investment Options’ and talk to your financial broker.

We’re here to help you protect what’s important to you and save for a comfortable future. We believe we offer funds from some of the best fund managers in the world to help deliver the investment outcomes that are important to you.

Aviva - your natural choice for investments

WARNING: The value of your investment may go down as well as up.WARNING: If you invest in these funds you may lose some or all of the money you invest.WARNING: The income you get from this investment may go down as well as up.WARNING: These funds may be affected by changes in currency exchange rates.


World class fund managers

Aviva InvestorsWe offer a range of funds to choose from with our main investment manager Aviva Investors, the global asset management company of the Aviva Group.

With a presence in 16 countries and an experienced team of over 1,300 employees, they manage over €400 billion on behalf of customers worldwide 1. This gives them the size and scale to successfully seek out opportunities that allow them to meet the specific outcomes customers value such as delivering reliable fund growth or providing a regular income. They value creativity and empower their investment teams to find and execute great ideas. In-depth research and robust risk management underpin every investment decision they make.

1. Source: Aviva Investors 30 June 2017, based on exchange rates as at 30 June 2017.

Legal & General Investment Management (LGIM) Legal & General Investment Management (LGIM) is the investment management arm of Legal & General Group (L&G), a FTSE 100 company, with a heritage dating back to 1836. LGIM, now established for over 40 years, is one of Europe’s largest asset managers 2 and a major global investor, with total assets of €1 trillion 3. LGIM works with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors. It provides investment expertise across the full spectrum of asset classes including fixed income, equities, multi-asset, commercial property and cash.

2. Source: IPE 2015.

3. Source: L&G at 30 June 2017, including derivative positions and advisory assets.

Merrion Investment ManagersOperating since 1986, Merrion Investment Managers (MIM), which is Irish-based with a global outlook, is Ireland’s number 1 performing independent pension and investment fund manager4 and manages approximately €1 billion in assets5. Their flagship fund is the number 1 performing, global multi-asset fund in the Irish market over the past 20 years4.

4. Source: MoneyMate 31 May 2017 based on Merrion’s 20 year return figure for the Merrion Managed Fund in the MoneyMate Multi-Asset/Managed Fund survey. Flagship fund refers to the Merrion Managed Fund. The Merrion Multi-Asset 70 Fund invests in the Merrion Managed Fund, a multi-asset fund.

5. Source: Merrion Investment Managers May 2017.

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The Simple PRSA and Select PRSA offer you access to the funds set out below. You simply choose the fund (or funds) that best suits your attitude to risk.

Simple PRSA Select PRSA

AIMS Target Return Fund (Ireland) No YesMulti Asset Fund Cautious (Risk 3) Yes Yes Multi Asset Fund Strategic (Risk 4) Yes YesMulti Asset Fund Dynamic (Risk 5) Yes Yes Merrion Multi Asset 30 Fund No YesMerrion Multi Asset 50 Fund No YesMerrion Multi Asset 70 Fund Yes YesHigh Yield Equity Fund Yes YesEurozone Equity Income Fund No YesAsia Pacific Equity Income Fund No YesEmerging Market Equity Income Fund No YesBond Fund Yes YesLong-Term Bond Fund Yes YesCorporate Bond Fund Yes YesCash Fund Yes YesIrish Property Fund Yes YesUK Property Fund No YesL&G Multi-Index III Fund Yes YesL&G Multi-Index IV Fund Yes YesL&G Multi-Index V Fund Yes YesL&G Europe (excl. UK) Equity Index Fund Yes YesL&G Euro Bond Index Fund Yes YesL&G Emerging Market Equity Fund Yes YesL&G World Equity Index Fund Yes Yes

If you would like to know more about these funds, please contact your Financial Broker.

Remember, the bigger your fund at retirement, the larger your pension will be. However, as some of these funds carry significant risk, they may not be a suitable investment in the last few years before retirement, during which you may wish to consider other lower risk funds.

For details of each of the funds listed above and the risk ratings applying to them, please refer to ‘Your Investment Options’ brochure or talk to your Financial Broker.

What funds can I choose?

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Default Investment Strategy

When you apply for a PRSA AVC from Aviva, you will be given a choice of investment funds, as outlined on page 11. However, if you do not wish to select any of these investment funds, you may choose an investment strategy known as the Default Investment Strategy.

The Default Investment Strategy is a strategy which we consider to be reasonable for a typical PRSA AVC contributor. We are assuming that:

• When you are younger and further from retirement you will want us to invest in assets that, over the long-term, have the potential to outperform deposits and similar less risky investments. This involves taking some risk with your investments, in order to improve the potential for higher returns,

• In the years immediately before retirement, you will want us to reduce the level of risk in your investments, even though this may lead to lower overall returns.

Default Investment Strategy – How it works

The Default Investment Strategy will operate in different ways depending on how you wish to take your retirement benefits. You will be given the choice of funding for either an Annuity or an Approved Retirement Fund (ARF). See pages 13 and 14 for a full description of an Annuity and Approved Retirement Fund.

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The Annuity Default Investment Strategy

When you retire, if you intend to purchase an annuity with your retirement fund, our Default Investment Strategy works as follows:

• When you first start your PRSA AVC, you will be asked to select the age at which you think you’ll retire. This is usually between 60 and 75 and is known as your normal retirement age (NRA). Provided you have more than 5 years to go before your NRA, 20% of your contributions will be invested in the High Yield Equity Fund and 80% of your contributions will be invested in the L&G Multi-Index V Fund,

• Five years prior to your NRA, we will rebalance the fund that you have built up. We will then gradually begin switching your fund and any future contributions you make, from the High Yield Equity Fund and then L&G Multi-Index V Fund, into a lower risk fund, the Bond Fund.

The simple table below shows how we will move your fund and any future contributions as you approach your normal retirement age*.

Fund mix and redirection of contribution applying at the following dates

Number of months to Normal Retirement Age

High Yield Equity Fund L&G Multi-Index V Fund Bond Fund

60 20% 80% 0%

59 18.33% 80% 1.67%

58 16.67% 80% 3.33%

And so on, each month, including…

49 1.67% 80% 18.33%

48 0% 80% 20%

47 0% 78.33% 21.67%

36 0% 60% 40%

24 0% 40% 60%

12 0% 20% 80%

2 0% 3.33% 96.67%

1 0% 1.67% 98.33%

Normal Retirement Age 0% 0% 100%

* The first rebalancing occurs on the same day of the month as the policy commencement date, immediately prior to the birthday that is five years before the NRA. The switching of your funds and redirection of contributions occurs evenly and monthly between the whole months shown in the table above.

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The Approved Retirement Fund Default Investment Strategy

When you retire, if you intend to purchase an Approved Retirement Fund with your retirement fund, our Default Investment Strategy works as follows:

• When you first start your PRSA AVC, you will be asked to select the age at which you think you’ll retire. This is usually between 60 and 75 and is known as your normal retirement age (NRA). Provided you have more than 5 years to go before your Normal Retirement Age (NRA), 20% of your contributions will be invested in the High Yield Equity Fund and 80% of your contributions will be invested the L&G Multi-Index V Fund,

• Five years prior to your NRA, we will rebalance the funds that you have built up and we will then gradually begin switching your fund and any future contributions you make, out of the High Yield Equity Fund and into the slightly lower risk fund, the L&G Multi-Index V Fund.

The simple table below shows how we will move your fund and any future contributions as you approach your normal retirement age*.

Fund mix and redirection of contribution applying at the following dates

Number of months to Normal Retirement Age

High Yield Equity Fund L&G Multi-Index V Fund

60 20% 80%

59 19.67% 80.33%

58 19.33% 80.67%

And so on, each month, including…

48 16% 84%

36 12% 88%

24 8% 92%

12 4% 96%

2 0.67% 99.33%

1 0.33% 99.67%

Normal Retirement Age 0% 100%

* The first rebalancing occurs on the same day of the month as the policy commencement date, immediately prior to the birthday that is five years before the NRA. The switching of your funds and redirection of contributions occurs evenly and monthly between the whole months shown in the table above.

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Review of your retirement strategy

The Default Investment Strategy is a strategy that we consider to be reasonable for a typical PRSA AVC contributor. If we change the Default Investment Strategy, we will write to you to advise you of any changes.

Any change in the Default Investment Strategy may involve us switching the funds you have built up and redirecting future contributions into different investment funds.

If your plan for how you wish to take your retirement benefits has changed, we will amend the Default Investment Strategy to reflect these changes.

If you inform us that you wish to change your Normal Retirement Age we will review your current asset mix to take into account your amended duration to Normal Retirement Age. Then, if necessary, we will re-align the funds into which your money is currently invested and premiums are being directed.

For further informaton on the funds which make up your Default Investment Strategy, please consult the guide ‘Your Investment Options’ and talk to your Financial Broker.

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Notes applying to investment funds and default investment strategies

1. From time to time, some of the funds may also hold a proportion of their assets in cash.

2. Investment values and unit prices are not guaranteed; they can fall as well as rise, and you may not get back the full amount invested.

3. Property investments cannot be sold as easily or quickly as equities or bonds – so, in order to protect the interest of the remaining investors, in some circumstances, encashment of units from funds that invest directly or indirectly in property may be deferred for a period not exceeding six months. For all other funds, encashment of units may be deferred for up to 3 months. Please see a copy of the policy conditions for further information.

4. There may be circumstances where the number and/or amount of investor withdrawals from the fund leads to a need to sell a proportion of the underlying assets. In such circumstances, Aviva Life & Pensions Ireland DAC reserves the right to adjust the unit price of the funds, to reflect the costs involved in selling the necessary assets. As a result, investors withdrawing money would bear the costs of realising all or part of their investment. For funds holding a significant proportion of property-related assets, given the costs associated with buying and selling properties, this adjustment can be significantly higher than that applying to funds invested in other asset classes.

5. We reserve the right to change the fund charges and fees subject to any legislative limits. Should any change in the fund charges and fees occur you will be given 2 months notice of such a change. The fund charges apply to the value of the investments and are deducted daily from the fund and/or taken monthly by cancellation of units. Aviva Life & Pensions Ireland DAC may from time to time close or merge the funds or offer the opportunity to invest in new funds not listed previously. These new funds may have fund charges different to those shown previously.

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Options at Retirement

The fund that you have built up in a PRSA AVC can be accessed between the ages of 60 and 75.A tax free lump sum may be payable to you from your PRSA AVC depending on your circumstances. Typically the balance is used to purchase an annuity or an Approved Retirement Fund (ARF) /Approved Minimum Retirement Fund (AMRF).

Annuity

Advantages Disadvantages

Annuities are lower risk than other retirement income options

Once you’ve bought it you cant cash it in, swap it for something else or alter your annuity payments

It will pay you a regular income no matter how long you live

The level of your pension income is not flexible

You can choose to provide for your spouse /civil partner when you die

Depending on when you die, you may get back less than you paid in

You can choose to reduce the impact of inflation on your pension income

Unless you choose to increase your pension income by a set percentage each year, you will not be reducing the impact inflation may have on your pension income

You can opt to guarantee your payments for 2, 3, 4, 5 or 10 years

Unless you choose otherwise, your spouse /civil partner will not be automatically provided for

The options you choose affect the level of pension income you receive. Generally the more options you add, the more it will cost you, so the lower your pension income will be

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ARF /AMRF

Advantages Disadvantages

No immediate loss of capital. Capital can be preserved for dependants subject to relevant taxes

Required to withdraw at least 4% pa from the ARF from 61 and 5% from 71. Value of fund will run down if investment return does not match this withdrawal rate.

Income flexibility – you can vary the amount of income you drawdown to suit your circumstances and can draw down more than required 4% or 5%, if required

There is a risk that the ARF funds may deplete entirely during the policyholder’s lifetime if withdrawals outpace growth of the ARF fund

You can use your ARF fund to purchase an annuity to a later date when annuity rates may be more favourable

You have the opportunity to participate in equity returns which offer the prospect of protection against inflation

Any returns made on your ARF are not taxed until a withdrawal is made

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What should I do now?Speak to your Financial Broker – they will be able to assist you with any questions you may have in relation to your plan.

Ensure the policy meets your needs:1. Shortly after your PRSA AVC has started, we will send you the full documentation governing your PRSA AVC and a

Statement of Reasonable Projection.

2. You will then have 30 days to change your mind. Study the documents – and, if you would like to cancel your PRSA AVC, simply return the documents and a signed Cancellation Notice (which will be enclosed with the Statement of Reasonable Projection), to the Customer Services Manager at our registered office, Aviva Life & Pensions Ireland DAC, One Park Place, Hatch Street, Dublin 2, D02 E651.

3. We will cancel your PRSA AVC and we will return any regular contributions that you have paid. In the case of a lump sum contribution which has already been invested, we will deduct the amount, if any, by which its value has fallen.

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.

Warning: If you invest in this product you will not have any access to your money before you retire.

Warning: These products may be affected by changes in currency exchange rates.

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Financial Services and Pensions Ombudsman

Lincoln House, Lincoln Place,Dublin 2,D02 VH29

Tel: (01) 567 7000

Email: [email protected]

Website: www.fspo.ie

Full details of the remit of the Financial Services and Pensions Ombudsman and the Pensions Authority can be obtained directly from their offices.

A commitment to quality service

Any enquiries or complaints regarding the policy should be in the first instance directed to our Pensions Department at our registered office, Aviva Life & Pensions Ireland DAC, One Park Place, Hatch Street, Dublin 2, D02 E651. We will endeavour to ensure that all matters in relation to the policy are dealt with in a satisfactory manner. In the event that you are dissatisfied on any matter, you may refer your complaint to either of these offices.

The Pensions AuthorityVerschoyle House28/30 Lower Mount StreetDublin 2.

Tel: (01) 613 1900

Fax: (01) 631 8602

E-mail: [email protected]

Website: www.pensionsauthority.ie

Aviva Life & Pensions Ireland Designated Activity Company, a private company limited by shares.Registered in Ireland No. 165970. Registered office at One Park Place, Hatch Street, Dublin 2, D02 E651.

Aviva Life & Pensions Ireland Designated Activity Company, trading as Aviva Life & Pensions Ireland and Friends First, is regulated by the Central Bank of Ireland.Tel (01) 898 7950 www.aviva.ie

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This brochure has been produced by Aviva Life & Pensions Ireland DAC. Great care has been taken to ensure the accuracy of the information it contains. However the company cannot accept responsibility for its interpretation, nor does it provide legal or tax advice. This guide is based on Aviva Life & Pensions Ireland DAC’s understanding of the laws and practice current in August 2018.

The information contained in this brochure is mainly of an outline nature. Changes in the legislation governing PRSAs, funds and taxation may, of course, be made by the government at any time.

© Aviva Life & Pensions Ireland DAC, August 2018.

a medical professional’s · 2019-07-02 · charges on non-standard prsas are not capped and, may...

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