AVCs

Additional Voluntary Contributions (AVCs) are a simple and effective way to provide benefits in addition to your pension from the Scheme. As the name suggests, AVCs are contributions that you choose to pay voluntarily on top of any contributions you are required to pay to the Fund. By paying AVCs you will build up a fund of money with Irish Life which is then used to provide additional pension benefits when you retire. You will choose how to invest the money with Irish Life.

The investment options, which are covered more fully within the Member Investment Guide allow you to choose either of the following options:

“Do It For Me” which is the default option

“Do It For Me” gives you the option of being less involved in your investment approach.Links to the factsheets in relation to the default option are provided below.It is a ready-made investment approach which automatically changes your asset mix as you approach retirement.It is designed for those who:

  • Do not feel comfortable making regular investment decisions.

  • Do not want to review their investment selection regularly as they approach retirement.

  • Would prefer to select an automated approach that switches their funds for them into less risky funds (like bonds and cash) as they approach retirement as follows:

Phase

Period

Strategy Factsheets

Growth Phase

more than 20 years from retirement

High Risk/Return Growth Strategy

Transition Phase

between 6 and 20 years before retirement

Medium Risk/Return Growth Strategy

Consolidation Phase

last 6 years before retirement

EMPOWER Cash Fund

If you choose the “Do It For Me” option this assumes that the AVC funds will be taken as cash at retirement. Please ensure you are satisfied with this assumption when reviewing your investment selection.

OR

“Do It Myself” which allows you to take control of your investment choices

“Do It Myself” is designed for those who:

  • Want greater control over their pension investments.

  • Understand investment decision making and are comfortable with the idea of selecting investment funds.

  • Are happy to review their investment approach regularly, taking particular care as they approach retirement.

  • Want access to specific investments.

  • Know how they would like to take their benefits at retirement (cash, pension, ARF).

  • Links to the factsheets for the different funds are provided below

High Risk/Return Growth Strategy

Medium Risk/Return Growth Strategy

EMPOWER Cash Fund

Indexed Corporate Bond Fund

Indexed World Equity Fund (partially hedged)

EMPOWER Pension For Life Fund 

Low Risk/Return Growth Strategy

Capital Protection Fund (this fund is closed to new joiner and accepts regular contributions only from existing members)

Secured Performance Fund (this fund is closed to new contributions)

If you are an employee and have paid AVCs already, you can access information about your AVC account with Irish Life by visiting www.pensionplanet.ie. ‘Pension Planet’ is a secure web facility that gives you access to the current value of your Retirement Account, details of recent transactions and investment information.

To register for Pension Planet, you should access www.pensionplanet.ie and click the ‘Register Here’ button on the screen. You will then be asked to enter your 7 digit AVC membership number (this can be found at the top of your AVC statement) and your date of birth. You will then be asked to provide some personal details for security and an email address.

Within a few days, you will be registered on the system and will receive two emails from Irish Life, one with your Registration Number and a separate one with your Personal Access Code. You should use these to log into your AVC account at www.pensionplanet.ie.

Who can join the AVC Plan?

All members of the Scheme are eligible for membership of the AVC Plan. To join you should complete the Application Form.

What are Additional Voluntary Contributions?

Additional Voluntary Contributions (AVCs) are simply extra contributions, which an employee may make on a voluntary basis to increase his or her retirement benefits. Any AVCs made by you are invested to provide an amount on retirement, which can be used to secure additional benefits for you, within certain limits.

How do AVCs work?

Any AVCs you make are paid into your own individual Retirement Account. You will choose how to invest the money in this account.  Your AVCs can be deducted directly from your salary, so you will receive immediate PAYE tax relief on any contributions made to your account.

At retirement, the value of your Retirement Account will be used to provide you with additional benefits to supplement the benefits from the Scheme.

At retirement, two main factors will determine the size of the pension that you can purchase from your AVC Plan:

  • how much an annuity costs when you are ready to buy one, and

  • how much you have in your Retirement Account.

What benefits do AVCs offer?

  • An efficient long-term savings vehicle

  • Full tax relief on your contributions (subject to limits) plus, once invested, your funds build up free of tax

  • A choice of investment funds

  • A Retirement Account that can be used to secure a variety of additional benefits.

AVCs may be of interest to you if:

  • You wish to boost your pension from the Scheme; or

  • You wish to provide additional benefits for your Dependants.

While the benefits already provided under the Scheme compare well with those provided by other companies in Ireland, most members still have scope to enhance their benefits on retirement.

Are there any disadvantages?

While AVCs are attractive, there are some points you should bear in mind:

  • AVCs represent a long-term financial commitment designed to increase your retirement benefits. It is a requirement of the Revenue Commissioners that they cannot be cashed before retirement (except in the event of your death and in limited circumstances if you leave service – see below).

  • The Pensions Act states that a member who is entitled to a statutory preserved pension cannot receive a refund of contributions. This means that if you leave with 2 or more years of Scheme service, and are not retiring at the same time, you cannot receive a refund of any pension contributions paid.

  • You cannot borrow back any of your contributions or use them as collateral for a loan.

How and when can I join or vary my AVCs?

You may start or vary contributions at any time.

  • If you wish to start paying AVCs please complete the AVC Application Form.

  • If you wish to change the amount of your regular contribution please complete the AVC Change Form.

  • If you wish to pay a lump sum into your AVC fund please complete the AVC Lump Sum Form.

What information will I receive as an AVC payer?

Each year, you will receive a benefit statement showing the amount you have contributed up to the previous 31 December and the value of your Retirement Account. 

How do I pay my contributions?

Your contributions are deducted from your salary each pay period. Alternatively, you can make lump sum contributions.

How much can I contribute?

The maximum amount you can contribute and receive tax relief on each year, including your regular contributions to the Scheme, is as follows:

Age Contribution (% Emoluments)
Under 30 years 15%
30-39 years 20%
40-49 years 25%
50-54 years 30%
55-59 years 35%
60 years and over 40%

It may also be necessary to restrict your AVCs so that your benefits will not exceed Revenue Limits on maximum benefits (set out in the Taxes Consolidation Act 1997).

Will my contributions qualify for tax relief?

Any contributions you make under the AVC Plan, up to the maximum specified in the table above, will be eligible for full tax relief at your marginal income tax rate. For tax relief purposes these contributions are limited to earnings up to a maximum of €115,000 (for 2016). These maximum contribution rates are inclusive of any contributions you make to the Scheme.

How do I get this tax relief?

Contributions are deducted from salary before tax is levied, so relief is automatic.

However, if you make a lump sum contribution from post-tax income, you will have to reclaim the tax relief by applying to your local tax office.

Example:

Patrick Payer has annual Emoluments of €45,000. Patrick's monthly Emoluments are therefore:

€45,000 ÷ 12 = €3,750

Patrick makes a monthly Additional Voluntary Contribution of 4% of monthly Emoluments.

4% x €3,750 = €150

Income Tax rate 20% 40%
Gross monthly contribution €150.00  €150.00 
Less income tax relief  €30.00  €60.00
Net reduction in take-home pay €120.00 €90.00

€150 is invested in Patrick’s Retirement Account each month but net reduction in take-home pay is clearly less.

What happens if I cannot afford to continue making AVCs?

Although it is intended that contributions will be made on a long-term basis, you may cease to contribute at any time. If you cease contributing, the value of your Retirement Fund, which you have built up, will continue to be invested until you retire.

Your Retirement Account is made up of your AVC contributions plus the returns made from investing your contributions. Over the years, you may invest a large amount of money in the AVC Plan, so it makes sense to understand what your investment options are. This section looks at how you can make informed investment choices, the types of investments available and how the time left until your retirement may affect your investment choices.

What should I consider when choosing my investment options?

There are a few essential issues that you should consider when deciding on your investment options:

  • How much time do you have to save and invest for retirement?

  • How much risk are you comfortable with?

  • How much money will you need when you retire?

  • What combination of benefits (cash, pension or ARF) are you going to use your Retirement Account for when you reach retirement?

These considerations will help you decide on the degree to which you want to invest in more aggressive (i.e. high in equity content) versus more conservative funds. Remember that the choice is yours, so give it due consideration. It is important to choose carefully where to invest your individual Retirement Account. If you are unsure of your options, you should seek independent financial advice.

Types of investment

When it comes to investing your Retirement Account, there are five main types of investments or assets:

Equities - This is a commonly used term for ordinary shares or stocks in a company. In essence, an equity is a unit of ownership in a company. An equity fund will hold a number of equities issued by a range of different companies. Although equities tend to be the riskiest or most volatile of the main asset classes (i.e. over the shorter term their value can fluctuate widely), over the long term they also have the highest expected return potential.

Bonds - Bonds are securities, issued by a government or company, which guarantee regular payments of interest and repayment of the original loan amount on a specified date or range of dates. A fixed interest security is another word for a bond, while gilt is another word for a fixed-interest security or bond issued by a government. A bond fund invests in a range of bonds with differing types and maturities (i.e. the period until the last repayment). Bond returns tend to be less volatile than equity returns, but the expected long-term returns on bonds are lower than those of equities.

Property - Property investments include a mixture of retail, office and industrial property. Property is expected to have a long-term return lower than equities, but higher than bonds. However, property investments incur significant buying and selling costs, and can be difficult to ‘cash-in’ quickly. As a result, property is typically invested as part of a wider portfolio of assets or via a managed fund.

Cash - A cash fund invests in short-term, liquid deposit instruments. Although cash returns are the least volatile of these main asset classes, over the long term cash is also expected to provide the lowest returns.

Managed - A managed fund invests in all of the above asset classes, typically in the region of 60-80% in equities and the balance in bonds, property and cash.

Balancing risk and reward

The Trustee has carefully selected a range of funds from which you can choose. There are funds to suit your attitude towards risk and your age.

All investors want the maximum return for the minimum risk. However, as risk cannot be completely excluded from any kind of investment, you need to understand the different kinds of risk involved when saving for retirement.

Each fund has different levels of risk. Generally, the higher the potential reward of an investment, the higher the investment risk. This means that if you choose a higher-risk fund, you may get higher returns over the long term (although this is not guaranteed).

If you are a more cautious person, you may choose a low risk option; however, you should note that low-risk funds tend to give lower returns in the long term.

Here is a brief explanation of the three kinds of risk that you need to think about:

Investment Risk - This is the risk that the value of investments can go down as well as up. This can happen with funds invested in equities and to a lesser extent with bonds. If you invest in equities and bonds, there is the risk that the value of your Retirement Account may fall just before you want to take your benefits. Equities, in the past, have performed well compared to other investments over the long term (although past performance is no guarantee of future performance).

Inflation Risk - This is the risk that the value of investments will not grow quickly enough to keep up with inflation. Even if your Retirement Account grows in value, if it does not grow in line with inflation, then the real value of your Retirement Account is eroded. This can happen with low investment risk funds, such as a deposit fund.

Pension Conversion Risk -When you retire you may wish to buy a pension with your Retirement Account. The cost of a pension depends on the rates used by insurance companies or other pension providers. The rates used are influenced by the price of bonds and other factors, such as interest rates, expected investment returns and life expectancy.

Why your age matters

Your age matters because the relative importance of investment risk, inflation risk and pension conversion risk changes as you approach retirement.

How does the time I have to retirement affect my investment choices?

Unless you are reasonably close to retirement age, your Retirement Account is a long-term investment. The number of years you have to save and invest until retirement could be up to 30 years or more. During this time, the amount you save, the investment returns achieved, and the rate of inflation will have a significant impact on the buying power of your Retirement Account.

In general, if you are not retiring for many years, you may decide that an investment in an equity or managed fund is appropriate, as equities offer the highest growth potential over the long term. Put another way, if you have many years to go until you retire, you may decide that you can afford to ride out the ups and downs of the equity market with the aim of capturing the higher expected long-term returns that equities offer.

In contrast, as you begin approaching retirement your strategy would probably be to begin phasing out of equities and into fixed income and cash. The main aim of this is to protect your Retirement Account against the short-term volatility of equity markets in the period prior to your retirement.

What fund options are offered by the AVC plan?

“Do It For Me” which is the default option

“Do It For Me” gives you the option of being less involved in your investment approach. Links to the factsheets in relation to the default option are provided below. It is a ready-made investment approach which automatically changes your asset mix as you approach retirement. It is designed for those who:

  • Do not feel comfortable making regular investment decisions

  • Do not want to review their investment selection regularly as they approach retirement.

  • Would prefer to select an automated approach that switches their funds for them into less risky funds (like bonds and cash) as they approach retirement as follows:

Phase Period Strategy Factsheets
Growth Phase

more than 20 years from retirement

High Risk/Return Growth strategy

Transition Phase

between 6 and 20 years before retirement

Medium Risk/Return Growth strategy

Consolidation Phase

last 6 years before retirement

EMPOWER Cash Fund

If you choose the “Do It For Me” option this assumes that the AVC funds will be taken as cash at retirement. Please ensure you are satisfied with this assumption when reviewing your investment selection.

OR

“Do It Myself” which allows you to take control of your investment choices

“Do It Myself” is designed for those who:

  • Want greater control over their pension investments.

  • Understand investment decision making and are comfortable with the idea of selecting investment funds.

  • Are happy to review their investment approach regularly, taking particular care as they approach retirement.

  • Want access to specific investments.

  • Know how they would like to take their benefits at retirement (cash, pension, ARF).

Links to the factsheets for the different funds are provided below:

High Risk/Return Growth Strategy

Medium Risk/Return Growth Strategy

EMPOWER Cash Fund

Indexed Corporate Bond Fund

Indexed World Equity Fund (partially hedged)

EMPOWER Pension For Life Fund

Low Risk/Return Growth Strategy

Capital Protection Fund (this fund is closed to new joiners and accepts regular contributions only for existing members)

Secured Performance Fund (this fund is closed to new contributions)

While the Trustee has taken great care in selecting the investment options that are available to you, they cannot accept responsibility for any loss, which may be incurred as a result of poor performance of the funds. Your choice of fund(s) will always be influenced by your own circumstances and your personal views of different types of investment risk. In particular, it must be emphasised that past performance is not necessarily a guide to future performance. The value of an investment can go down as well as up.

The Trustee regularly monitors the investment manager and the performance of the investment funds. In certain circumstances, the Trustee may deem it necessary to switch both existing assets and new contributions to a new investment manager. You will be notified if any such change is planned.

How do I choose the right investment(s) for me?

The AVC Plan provides you with seven investment funds to choose from.

As discussed above, there are many issues that you should consider when deciding how to invest your contributions, including the short-term and long-term performance expectations for each fund and the expected volatility of each fund. You also need to review how close you are to retirement. If you are likely to retire shortly, the expected volatility of each fund is of particular importance.

The table below shows general return and risk characteristics for each of the fund types available.

FUND NAME RISK PROFILE OBJECTIVE

Indexed World Equity Fund (partially hedged)

High To achieve average global equity fund growth on a consistent basis, with reduced currency risk.

High Risk/Return Growth Strategy

High

To target Volatility (risk) of less than two thirds that of equities. You could expect this strategy to achieve a return in the region of Inflation +4-6% p.a., gross of fees, over the long term (20 year horizon). Note that this is a long term target and is not guaranteed.

Medium Risk/Return Growth Strategy

Medium

To target Volatility (risk) of less than one half that of equities. You could expect this strategy to achieve a return in the region of Inflation +2-4% p.a., gross of fees, over the long term (20 year horizon). Note that this is a long term target and is not guaranteed.

Indexed Corporate  Bond Fund

Medium

To produce a return in line with the benchmark index, by investing in debt issued in Euro by large global companies. This is a Bond investment, see page 5 for a description.

EMPOWER Pension for Life Fund

Medium

To broadly follow the long-term changes in annuity prices due to interest rates. This is a passively managed fund, which invests only in high quality rated Eurozone Government Bonds.

Low Risk/Return Growth Strategy

Low

To target Volatility (risk) of less than one third that of equities. Approximately 25% of the fund is invested in shares, with the remainder of the fund made up of bonds, property and cash.

EMPOWER Cash Fund

Low

To achieve a reasonable rate of interest with a high degree of security./p>

Capital Protection Fund(This fund is closed to new joiners and  accepts regular contributions only from existing members)

Low To achieve average market returns over the long term.
Secured Performance Fund
(this fund is closed to new contributions)
Low To achieve average market returns over the long term.

Please note the value of funds, and income from them, may fall as well as rise. Exchange rates may affect the value of an overseas investment. As a result, an investor may not get back the amount originally invested. Past performance is not necessarily a guide to future performance.

Caveat

  • These characteristics are intended to only give a broad overview of the funds.
  • They are not intended to capture all aspects of the funds and do not represent guarantees or assurances from the Trustee as to the performance or risk level which may actually be experienced.

What will happen when I retire?

When you retire, the accumulated value of your Retirement Account will be available to supplement your benefits from the Scheme, subject to the Revenue Limits on maximum benefits.

How you choose to use your Retirement Account will depend on your personal circumstances such as your length of service, whether you have Dependants, and so on. You may use your Retirement Account in one or more of the following ways:

a) Purchase additional pension for you and/or your Dependants. This is done by the purchase of an annuity from an insurance company. In effect, you exchange the value of your Retirement Account for a guarantee of a regular income for the rest of your life.

b) Increase or provide your cash lump sum. Depending on your service with the Company, you are entitled to take a cash lump sum of up to one and a half times your final remuneration. Lump sums up to €200,000 are currently paid tax-free. For larger lump sums, the excess over €200,000 will be subject to tax at the standard rate, but any amount over €575,000 will be taxed at the higher rate.

c) Invest in an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF).*

d) Take a taxable cash lump sum. Once you have taken your full cash lump sum entitlement as described in option b), you can also take a further cash lump sum. However this amount will be subject to deduction of income tax at your highest rate.

*In order to be eligible to invest in an ARF or take a taxable cash lump sum, you must have a guaranteed minimum income of €12,700 pa from pensions or annuities. This figure may include your State retirement pension but only if it is already in payment. If your total income does not meet this minimum requirement, you may still be able to invest in an ARF if you invest €63,500 (at 2016) in an Approved Minimum Retirement Fund. While you cannot withdraw any of the amount that has been set aside in the AMRF until you reach age 75, you may withdraw any income this fund generates.

Full details of these options will be available as you near retirement.

What is an approved retirement fund (ARF)?

An ARF is a type of fund operated by certain authorised investment managers, which allows you to choose between the various investment options and gives you complete control over when and how you draw down funds.

ARFs give you the opportunity to continue to invest your Retirement Account in a tax-efficient way after you retire, with the added flexibility to withdraw cash as required. Qualifying fund managers offer a choice of ARF investments ranging from bank deposit accounts to unit linked funds.

The investment return on an ARF is exempt from tax for as long as it remains within the fund. You can withdraw cash from an ARF whenever you wish, subject to the terms offered by the fund manager. Withdrawals are subject to income tax and PRSI, which will be deducted at source by the fund manager.

Each year from age 61 there will be an imputed 4% distribution from an ARF (rising to 5% from age 71) irrespective of whether or not an actual distribution occurs. This will be taxed at your marginal rate. If actual distributions are made, those will count towards the imputed distributions. This provision does not apply to Approved Minimum Retirement Funds (AMRFs).

An ARF can be left as an inheritance on your death, subject to certain tax limitations, depending on your relationship with the person who inherits the ARF.

Are benefits taxed?

Any extra pension arising from your Retirement Account is taxed as part of your pension in the normal way under the PAYE system.

Can I switch funds?

Yes, if you would like to switch your existing funds and/or your future contributions, you may do so at any time. The first six switches in any one year are free, but subsequent switches incur a charge. A switch will take effect following receipt of your Switching Form.

When can I take a refund?

You may only take a refund of your AVCs if you are leaving the Company and you are taking a refund of your normal contributions to the Scheme.

In all other circumstances, your AVCs will be dealt with as outlined below. This is a requirement of the Revenue Commissioner. Additionally, the Pensions Act 1990 states that if you are entitled to a preserved pension you cannot receive a refund. This means that if you have two or more years of Scheme service you cannot receive a refund of any pension contributions.

How much is the leaving service refund?

If you are entitled to a refund, you will receive the full value of your Retirement Account less tax at a flat rate of (currently) 20%.

What happens to my AVCs if I leave the Company but do not or cannot take a refund?

Your Retirement Account will remain invested to provide you with benefits when you retire.

What happens on death before retirement?

In the event of your death before retirement, the value of your Retirement Account will be paid to your Dependants or estate in addition to any other Scheme benefits payable on your death.