Employer pension contributions

Employer Pension Contributions are payments made into an employee’s pension scheme by their employer.

As an employee, it is important to know what exactly these contributions are and how they work.

In Ireland, employers are required to have pension schemes. However, when they don’t have one, they can allow staff to contribute to their own Personal Retirement Savings Accounts (PRSA).

How companies benefit from employee pension schemes

Employers can get Tax Relief on contributions they make to employees’ pensions. If as an employer you contribute to a group pension, you can save money on taxes.

Indeed, the contributions that you make for your staff could be fully deductible for corporation tax relief.

Are you an employer who is thinking about making a group pension available to your staff? If you contribute on behalf of your staff, these contributions could be fully deductible for corporation tax relief.

So not only do you make your company more attractive by offering a pension to your employees, but you also reduce your company’s overall tax liability.

How employees can benefit from employer contributions

If you are part of an employee pension scheme, your employer’s contributions aren’t counted towards your own tax relief.

This means that John, 42, can contribute up to 25% of his salary to his pension. He makes a monthly contribution of 10%, and his employer makes a contribution of 10%.

Because his employer’s contribution doesn’t count towards his tax relief, John can still make an AVC contribution once a year of 15% of his salary, and get the maximum benefit of his Tax Relief.

John’s Salary €55,000
John’s Tax Relief 25%
John’s Maximum Contribution p/a €13,750

John’s Employee & Employer Contributions

% Value (€) Net Cost to John
John’s Contribution 10% €5,500 €3,300
Employer Contribution 10% €5,500 €0
Total Contributions 20% €11,000 €3,300

Due to John’s tax relief, at the higher marginal rate of 40%, his total contributions of €11,000 only cost him €3,300 Net.

If John adds an AVC of 15%, or €8,250

% Value (€) Net Cost to John
John’s Contribution 10% €5,500 €3,300
Employer Contribution 10% €5,500 €0
John’s AVC 15% €8,250 €4,950
Total Contributions 35% €19,250 €8,250

With an AVC, John’s contributions are maximised for tax relief. He can contribute €19,250 per year, between his personal contributions, employer contributions, and his Additional Voluntary Contributions. This will cost him €8,250 Net.

Is an employer’s contribution a Benefit In Kind?

Employer Pension Contributions are not considered Benefit in Kind to you. If your employer makes a pension contribution to their pension scheme for you, this is not considered a Benefit in Kind to you. This means that you aren’t taxed on this contribution.

Can an employer contribute to a PRSA?

If you’ve got a PRSA, owned by you personally, your employer might contribute for you. This is a Benefit in Kind. However, you won’t be taxed on this unless your total personal and employer contributions are above your Tax Relief Limit. If your limit is 25%, you can contribute 15% and your employer can contribute 10%, and this benefit won’t be taxable.

How do I start a pension?

  • The earlier you start contributing to your pension the better. If your company gives you the option to join a company pension scheme, take the opportunity. Your employer scheme documents will show you exactly how much you can contribute, and how much your employer will contribute.
  • If your workplace doesn’t offer a pension scheme, you can set up your own PRSA (Personal Retirement Savings Account) and make your own contributions through your payroll. Your employer is obliged to give you access to at least one Standard PRSA. You will also receive tax relief at source on your contribution through your payroll. Learn more about them here.
  • If you’re an employer, and you’re wondering whether to offer access to PRSAs, or to set up a company scheme, don’t forget about your own pension provision. Giving your employees access to a pension scheme is a tax-efficient way to offer a benefit to your staff, and an opportunity to look after your own pension at the same time.

What we can do for you:

Employees

If you’re an employee with questions about how to deal with your company pension, don’t hesitate to get in touch with us. We can help you get the best from your company’s pension. Our financial advisors will look at your options, review your scheme, and help with AVC decisions.

Are you in a job where there’s no pension scheme? We will assess your situation and find the best pension plan for you.

Get in touch with us, we’ll help you work out what you can afford, and give you advice on a PRSA. We’ll even answer your employer’s questions and help them too.

Employers

Are you an employer thinking about the best pension options for you and your employees? Greenway’s Business Advisors and Financial Advisors can help you with an efficient scheme for your company.

Call 01 853 2727 to arrange a consultation with one of our advisors.

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372

Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer services background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018.

She believes that product knowledge is key to helping customers make the right choices.