Employer Contributions (Occupational Pension Scheme)

[B.A.C.]

Regarding employee income (Schedule E), aged 35, there is a limit of 20% of net relevant earnings (capped at €115,000) which can be paid into a occupational pension scheme with a relief at the marginal rate of tax.

If the employer also makes contributions to the employees occupational pension scheme what limits apply to the amount they can contribute which will be not taxable to income tax for the employee?

For employees who are negotiating a salary increase is this a way good way to get extra remuneration without increasing the tax liability if they feel they don't need additional take home pay at the present time from this employment and would rather negotiate a deal to increase their pension?

*Employee also has Schedule D Case II Income.

 

[LDFerguson]

You've said that this is an Occupational Pension Scheme and not a PRSA and this is important. In broad terms, an employer can make employer contributions to an Occupational Pension Scheme such that the employee will not be likely to receive a pension of greater than 2/3 of salary at Normal Retirement Age. It's a different method of calculating - instead of looking at a percentage of the employee's salary now, the employer must look at the anticipated pension at retirement. In practice, the limits for employer contributions tend to work out as far greater percentages of salary than the 20% and other age-related limits for employees. In many cases I've seen the calculation permitting contributions of >100% of salary by an employer, so in practice the employer rarely has to worry about exceeding their limits.

An employer can increase their percentage contribution to an Occupational Pension Scheme. But they need to be careful that they are not falling foul of Revenue's "salary sacrifice" prohibition. For example, an employee cannot ask their employer to reduce their salary by €10,000 per year and simultaneously increase the employer's pension contribution by €10,000 per year.

Regards,

Liam
www.ferga.com