A Company Pension is set up under a Trust by a company to provide retirement benefits for those included within it. A Company Pension plan can include any number of employees from one upwards.
There are two types of Company Pension:
Defined Benefit – this is where employees are paid a pension based on their salary at the time of retirement (or an average over the previous years) together with the number of years of service.
Defined Contribution – this is where the employees pension is determined solely by the contributions of the employer and where applicable employees and the investment returns earned on those contributions.
Typically under a defined contribution both the company and the individual will contribute to the scheme. This is decided by the company and some examples include:
- 10% Employer – 5% Employee
- 6% Employer – 4% Employee
- 5% Employer – 5% Employee
Included in this might be a vesting period. This is the period in which should and an employee leave the scheme within this timeframe the company have the right to recoup there pension contributions. This is usually 2 years in duration.
Company Pension Plans provide excellent tax benefits to both the employer and employees and these are:
Tax relief for the company
Contributions made by the company into an Executive Pension Plan can usually be offset against Corporation Tax as an allowable business expense (subject to Revenue limits).
You can also benefit from tax relief on any personal contributions you make. Tax relief is normally available at your marginal rate of tax (41%, if applicable) up to a maximum of 40% of earnings each year, depending on your age. This reduces the net cost of your pension contributions considerably.
Should the employer wish to contribute beyond a given percentage the max entitlement would be to fund for a pension up to two-thirds of final salary (to include all previous pension amounts) and a fund threshold of €2,000,000 (as of January 2014)
Also, there are limits as to the amount an individual can contribute to their pension scheme and these are:
Up to age 30 years of age 15% of net relevant earnings
30 up to 40 years of age 20% of net relevant earnings
40 up to 50 years of age 25% of net relevant earnings
50 up to 54 years of age 30% of net relevant earnings
55 up to 59 years of age 35% of net relevant earnings
60 years of age plus 40% of net relevant earnings
For further information on Company Pensions, a review of your existing plan or a consultation on new plans please contact us.