Pensions have hit the headlines in recent months as it is quite clear that we are sleepwalking into a pension crisis in the not so distant future. With an aging population a growing reality, the cost of retirement provision to the State is set to increase significantly in the coming 15-20 years. The State pension was never designed with the intention of supporting the sort of lifestyles that people have in mind for their retirement – full of leisure, travel and good health which is driving up our life expectancy.
Auto-enrolment plans have been discussed however these have been muted in recent months with no headway being made. In reality, even if auto-enrolment was introduced it would take years for this to take full effect.
Private pension funding is now something which should be on all employee minds and this can be used as a key tool in staff retention. Losing talented staff costs a business time and money so anything that helps protect against this should be given due consideration.
Not all departures are negative but there can be significant effects when losing a key employee:
- Loss of Knowledge, skills, and understanding of the business
- Competitors gain – most leavers end up going to a competitor and bring this knowledge and experience along with them
- Loss of morale – if employees see people leaving they may also have their heads turned and may look to ‘jump ship’.
- Cost of finding and hiring new staff
- Cost of bedding in period of the new staff member as they need to be trained up etc.
What benefits does an employer pension scheme bring?
If you give an employee a 5% pay raise, they are only going to take home an additional 2.5% approximately after tax, whereas, if you pay an additional 5% of salary into their pension then they get the full 5%.
For example, taking a higher rate taxpayer employee and an increase of €1,000 of gross earnings, when allowance is made for PRSI @ 4%, USC @ 5.5%, and income tax @ 40%, the employee will take home just €505 whereas they could receive the entire €1,000 into their pension fund tax free as the full employer contribution is exempt from BIK for the employee.
Not only will the employee save on tax with the contribution going into their pension, but the gross roll up effect of pension arrangements may also increase the tax efficiency of the pension option, compared with Income Tax, DIRT, Exit Tax and Capital Gains Tax impacting on returns from other personal savings and investments.
Contributions made by employers also receive tax relief against corporation tax.
Positive corporate image
By putting in place a group pension arrangement, it promotes an image of a business that cares about its employees. It shows a level of commitment that you want the employees to remain in the company for the longer term.
Some arrangements allow for any employee contributions to be recouped should the employee leave the company within a certain time frame which gives the employee an incentive to remain with the company.
Other Benefits can be also included
As well as pension benefits you may wish to consider including other benefits within your pension offering for your employees, in particular, Life Assurance and Income Protection benefits. Life Assurance provides peace of mind for employees that in the event of their death there is a financial benefit in place for their loved ones. Income Protection provides salary replacement for employees in the event of a prolonged absence from work due to long term illness or injury and also reduces the financial burden on you as their employer during their absence.
Want to find out more?
Contact us for advice on what benefits you should be implementing in your business and one of our advisors will carry out a review.