Things are picking up!! Everywhere you look there are signs of the “green shoots” taking root and starting to bloom. There are more than 70 cranes visible over the centre of Dublin. This is all good news for the economy, and for the Construction Industry in particular, however it does raise an issue for employers … how do I get the best people to work for me and to stay working for me? The most obvious answer is to pay them more but have you considered your pension scheme as a tool to do this?
Pensions are in the news at the moment. More and more people are becoming aware of the looming “Pensions Time Bomb” in relation to the State funding deficit and the very real prospect of the possible further extension of the State retirement age or the introduction of means testing for State Benefits. The onus is very much being put on individuals to provide for their own retirement by way of their private pensions. With this in mind it makes an enhancement of your pension offering to your staff a much more attractive proposition … for both the employer and employees.
If you give an employee a 5% pay raise they are only going to keep 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, the gross roll up effect of pension arrangements may 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.
You may also consider providing a matching employer contribution under your pension arrangement for your employees to encourage them to get the maximum benefit of their savings. For example, you could offer to match each % of salary the employees pay to a certain maximum limit. This may encourage employees to make personal contributions to their arrangement which provides additional tax savings as they will receive tax relief at their marginal rate of tax subject to the following limits:
Remuneration currently capped at €115,000
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. The payment of pension contributions and Life Assurance costs can also be included as part of your Income Protection arrangement.
What’s in it for you? Apart from showing yourself to be an employer that provides generous rewards for their employees, and therefore making yourself a much more attractive proposition to existing and potential new employees, relief is allowed for Corporation Tax purposes in the accounting period in which contributions, including the cost of Group Life Assurance and Income Protection benefits, are paid.
The provision of such benefits sends a message to your existing employees that you are a benevolent employer who has their best interests at heart and that they want to continue to work for. It also shows potential new employees that you are an employer they would want to join.
CPAS are the Pension Specialists for the Construction Sector and we offer a wide range of services through the pension schemes we administer. Our team welcome the opportunity to tell you and your members more about our services. If you wish to discuss your own retirement savings plan, please contact your usual CPAS contact and we will assist you however we can.
Damien Starken