The mutual benefits of employee pension provision

Employee pension provision: A recent survey by the Prudential identified that that 24 per cent of those due to retire in 2018 cannot afford to retire, a further 25 per cent will have to supplement their retirement income by continuing to work to generate some form of income.

By Kevin McKenna, independent financial adviser, Cheetham Jackson.

And this got me thinking about how employers can help address this issue. Many of my clients are not clear on the advantages and benefits of providing a pension or making pension contributions on behalf of staff, some do not see the connection to the real value of a pension as an employee benefit.

Indeed, many business owners say to me that when recruiting, “what is the pension provision?” is becoming even more important as a recruitment and retention process.

So what is an employer contribution?

It's a payment made by an employer into an employee's pension. The contribution could be in the form of salary sacrificed by the employee or come direct from the company.

What are the benefits of an employer contribution?

Business owners and company directors: Contributions to an employee’s pension can be offset against corporation tax.

Sole traders and partnerships: Contributions to employees can be offset against the income tax liability.

Employers: Unlike salary, pension contributions are exempt from National Insurance of 13.8%. Employees: Subject to the employer’s approval employees can save tax and National Insurance by sacrificing part of their salary with a pension contribution.