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Pensions: Can you ask for a smaller salary and a bigger employer's pension contribution?

  • 17-02-2022 6:24pm
    #1
    CubicleDweller
    Registered Users, Registered Users 2 Posts: 136 ✭✭


    Asking for a friend....

    A friend of mine hopes to retire early in a few years and wants to maximise his pension fund. He's using AVCs to contribute the maximum allowed percentage (35% at his age) of his salary into the company pension scheme. His employer pays 10% into the scheme on top of his salary.

    He thinks he could manage with a little less take-home pay for a few years - lucky him - so he's thinking of asking his employer to pay him a smaller salary but to pay a bigger contribution into his pension fund. Basically they would pay him the same total amount, just less of it in salary and more of it in pension contributions.

    If his employer agreed, would that be okay with the Revenue? Would they see it as unlawful tax evasion or as a reasonable tax avoidance measure? Are there any limits to what percentage of his salary the employer could pay into his pension fund?

    There would presumably be implications for USC and PRSI but he initially just wants to know if the idea is feasible or a complete non-runner.

    Any good information on this would be much appreciated.



Comments

  • #2
    Blud
    Registered Users, Registered Users 2 Posts: 420 ✭✭Blud


    Non runner. Salary sacrifice, taxed as though he received the salary.



  • #3
    CubicleDweller
    Registered Users, Registered Users 2 Posts: 136 ✭✭CubicleDweller


    https://www.boards.ie/discussion/comment/118648561#Comment_118648561

    Thanks, Blud. Sadly, I think you're probably right. Once I knew the term "salary sacrifice", throwing that at google along with "pensions" and "ireland" quickly found this file on the Revenue's website: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-03.pdf where Section 3.8 says:

    3.8 Salary sacrifice

    Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer. Such arrangements are subject to the provisions of section 118B TCA, which deals with Revenue approved salary sacrifice arrangements.

    I think that means the extra contribution would be treated as though it were an employee contribution rather than coming from the employer. And my friend has already maxed-out the employee contributions, so he'd have to pay tax on it before what was left went into the fund. 😔

    (By the way, I think the "Revenue approved salary sacrifice arrangements" are just those listed here: https://www.revenue.ie/en/employing-people/what-constitutes-pay/what-pay-includes/salary-sacrifice-arrangements.aspx - travel passes, shares and the bike-to-work scheme.)

    Oh well, it was a nice idea while it lasted. Thanks again, @Blud



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