PRSI and USC treatment of pension employer vs employee contributions

N

newirishman

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Have a pension scheme where the employer contributes 5% when I match with 5% - so total of 10%.
As per taxation rules, both contributions are before tax (so no income due on it / "income tax relief") - so far so clear.
It looks like the employers contributions are not included for employer's PRSI calculations.
It looks like employees contributions (and any AVC beyond the matching 5% up to the age related limits) do however attract PRSI & USC
(Quote: There is no relief from Universal Social Charge (USC) or Pay Related Social Insurance (PRSI) for employee pension contributions.)

This is also what I saw when I make additional pension payments directly (ie from savings) and include it with my income tax return.
(I more or less immediately get 40% of the pension payment back from revenue)

Assuming that it can be arranged with the employer, would it therefore be possible to have any additional pension contributions to be arranged as employer contributions, so as to not have to pay PRSI&USC on it. (it annoys me of course no end that there's a 115K limit on the income tax relief, but there is no limit on PRSI or USC liability, but that's a different story).
It looks too straightforward to be workable for my liking. Also wondering - beyond the revenue aspect - if there's any drawback from a pension scheme perspective.

This all of course taking into account the age-related limits.

Appreciate any thoughts.
 
Your analysis is correct.

It would be much better if your employer paid you 5% less and contributed 10% to your pension fund.

It would save them Employers PRSI and it would save you Employees PRSI and USC.

For people who own their own company, the company usually makes the pension contribution.

Brendan
 
Thank you Brendan, I have to say I am a bit surprised; OTOH, it is probably "only" a few hundred euros overall so maybe not worth for Revenue to worry too much about it.
I shall have a word with the payroll department so.
 
A friend of mine had what he called a "flex" arrangement. He could take the total salary in a number of different ways. It was in his contract. Not sure how it worked for tax purposes.

The contract should probably say
"Gross salary €50k
Pension contribution €10k.
At any stage the employee can waive part or all of the pension contribution and have it paid as salary instead."

so it would be more "pension sacrifice" than "salary sacrifice"

Brendan
 
newirishman said:
Well there you are! Thanks RedOnion. What triggered this specific question was an upcoming bonus payment and how to minimise tax on it.
This is an interesting document for some other reason as well in fact.
Click to expand...
My understanding is if you normally take this bonus as salary and change it to an employer contribution, that would be considered salary sacrifice. If this is the first time you’re getting a bonus and the company is agreeable to making an employer contribution that is fine. Not sure where things stand with an increase in your bonus payment, seems reasonable that the additional bonus is new income and could be done as an employer contribution.

The benefit of taking increased employer contributions are a real missed opportunity for many!
 
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