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Darach Honan: Know your employer pension obligations

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AS A business owner you’ll already know that your biggest investment of all is in the people who work for you. It is their experience, skills and energy that drives your business forward and every successful business puts its people first.

Part of putting your people first is providing them with the opportunity to plan for their future retirement through a pension. In fact, so important is the provision of retirement planning for employees that the law now obliges all employers to provide their employees with an occupational pension scheme or Personal Retirement Savings Account (PRSA), or to at least enable employees to make contributions directly from their salary into their own pension scheme.

In the past, most occupational pension schemes operated on a defined benefit basis which placed a quite considerable burden on employers. Workers in the scheme were guaranteed a pension which was a percentage of their final salary, depending on the contributions made and their years of service, but irrespective of the performance of the investment fund. This meant that employers were obliged to make up any shortfall between the fund and the pension payments.

Financial advisor Darach Honan gives advice to Clare Echo readers

Most occupational pension schemes are now defined-contribution schemes where the worker’s pension is based upon the investment performance of the pension fund and where the employer is not obliged to make up any shortfall in the investment performance. Both defined benefit and defined-contribution schemes involve the employer making at least a small contribution to their employee’s pension funds.

A PRSA is like a defined benefit contribution scheme except that it is personally owned by the employee.

You are obliged to ensure your employees have access to a PRSA scheme if:

  • You as an employer, do not operate an occupational pension scheme, or
  • Any of your employees do not qualify to join an occupational pension scheme, or
  • Any of your employees are excluded from making Additional Voluntary Contributions to and occupational pension scheme.

Despite these broad obligations, the pension’s burden on employers has been lightened by the introduction of PRSAs. These have particularly benefited smaller businesses as there is no requirement for the employer to make any contributions on their employees’ behalf. It’s worth noting, however, that any pension or PRSA contributions that are made by employers on behalf of employees are fully deductible for Corporation Tax purposes, so such contributions can be a tax efficient form of staff incentivisation.

If you have yet to set up a pension scheme for your employees, it’s very worthwhile engaging the services of a financial adviser with specialised experience in this area. Pension schemes are relatively easy to establish and are offered by a number of the major financial institutions in Ireland, but it’s important to ensure that you pick a scheme that meets both your needs and those of your present and future employees. A financial adviser can talk you through the choices available to you and advise you on choosing the right one. A pension scheme from a well-recognised and respected provider is an attractive staff benefit and can have a role to play in staff recruitment. Once you have chosen your pension provider, in conjunction with your financial adviser, you should then let your eligible staff know of the availability of the scheme and their right to contribute to it. One of the best ways of doing this is to invite your financial adviser to present the details of the scheme to your employees. This can take place at your premises for convenience and to avoid disruption to the working day.

The adviser can outline the scheme and its benefits and is on hand to answer any queries directly. Eligible employees are entitled to enough paid leave-of-absence to enable them to sign up to a pension scheme, so an in-house presentation makes sense in many ways.

Providing all your employees with access to a pension, either through an occupational pension scheme or PRSA is not just an obligation; it’s a positive statement of belief and investment in your workforce. By providing them with pension options you’re also helping them plan for their retirement and building your employees’ peace-of-mind, enthusiasm and loyalty.

 

 

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