Approaching an employer to start a pension contribution

Sniipe

I'm not knowledgeable in the ways of pensions. I currently pay my own private pension but it would grow faster if it had employer contributions. What are the benefits to an employer in providing one?

My thinking is is that I'm better off in the long term if an employer gave me €X into my pension rather than a pay increase of €X, because perhaps the employer will gain tax relief on their contribution?

Henry Ford III

They also save some employer PRSI.

Tow

PRSI relief went back in 2011, there are no benefits to private sector employers. However, Public Sector employers still get 50% from Employers PRSI for the Pension Related Deduction.

Your employer is legally obliged to offer a pension if requested. In a couple of years they will have to sign all employees up the a pension, but that's another story...

Mrs OBumble

Tow wrote: »

Your employer is legally obliged to offer a pension if requested. In a couple of years they will have to sign all employees up the a pension, but that's another story...

They're only obliged to administer your contrubutions. They're not obliged to contribute themselves.

Sniipe

Henry Ford III wrote: »

They also save some employer PRSI.

Can you give an example of how they would save employer PRSI?

Merowig

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_employer_contributions/

coylemj

Sniipe wrote: »

Can you give an example of how they would save employer PRSI?

They would only save the employer PRSI in the event that the employees agreed to a pay cut in return for an equal contribution by the employer to the pension scheme. That would be tax-neutral for the employees but the employer would save on his PRSI contribution.

It could, however, have a benefit for any employees who were already making the maximum tax-free contribution allowable because an employer contribution to an occupational scheme does not count towards the employee limit.

Say an employee aged 40-49 was currently making the maximum (tax-free) contribution of 25% to the scheme, including contributions to an AVC. If that employee makes any additional contributions, they will not be tax free so every additional euro going into the fund will cost him/her one euro. Now let's say the employer suggests that the employee takes a pay cut of €100 per month (gross) and offers to instead put that €100 into the scheme as an employer contribution. The employer will save PRSI on the money and the employee will get the same PAYE tax benefit as if it was an employee contribution (plus saving on USC and PRSI) except that the additional money will not blow the 25% limit since contributions by the employer don't count towards that limit.

Sniipe

coylemj wrote: »

It could, however, have a benefit for any employees who were already making the maximum tax-free contribution allowable

I appreciate the answer here, but this is not me.

coylemj wrote: »

They would only save the employer PRSI in the event that the employees agreed to a pay cut in return for an equal contribution by the employer to the pension scheme. That would be tax-neutral for the employees but the employer would save on his PRSI contribution.

What I wonder is how much this would save the employer. Because I could say at my next review; I will take a pay freeze and instead of lets say the 100 gross I could get can you contribute to my pension... because in the long term I will gain more out of that?

Or does it make no difference really and I could just put that 100 gross into my private pension.

The main reason for the thread is to figure out the exact amount an employer would save if instead of giving 100 in a pay rise they would contribute to my pension.

Sniipe

Sniipe wrote: »

...............

The main reason for the thread is to figure out the exact amount an employer would save if instead of giving 100 in a pay rise they would contribute to my pension.

The employer's PRSI.
Also there is some merit to keeping your salary lower......... should they make you redundant

coylemj

Sniipe wrote: »

What I wonder is how much this would save the employer. Because I could say at my next review; I will take a pay freeze and instead of lets say the 100 gross I could get can you contribute to my pension... because in the long term I will gain more out of that?

The only obstacle I can see is that there may be a clause in the revenue rules which says that all employees must be treated the same for pension benefits. This would prevent one-off arrangements.

Benefits like a subsidised cafeteria are tax-free to the workers, i.e. the employee doesn't have to pay benefit-in-kind, provided the benefit is available to all employees. The same may apply to the employer's contributions to the pension scheme, precisely to stop pay substitution as we've been discussing here.