How Can an Occupational Pension Scheme Benefit Employers and Employees?

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Occupational pension schemes set up by employers to provide employees with retirement benefits. 

An occupational pension plan is a rewarding business incentive that usually involves employer and employee payments to the employee’s retirement account.

There are numerous advantages to an occupational pension plan for both employers and employees.

Types of Occupational Pension Scheme

These schemes typically fall into two primary categories:

Defined Contribution Schemes

In a Defined Contribution (DC) scheme, the money you contribute in gets invested to grow and provide you with a certain amount of money when you retire.

The eventual pension amount is determined by both the contributions made and the performance of these investments. Typically, you’ll contribute a percentage of your earnings to the scheme, with additional contributions from your employer.

If your employer doesn’t offer access to an occupational pension scheme, they are required to provide access to a standard PRSA (Personal Retirement Savings Account).

Defined Benefit Schemes

In a Defined Benefit (DB) scheme your pension amount doesn’t rely on how well the invested funds perform, the pension benefits are based on a formula typically tied to the employee’s salary and years of service.

Typically, you contribute a fixed percentage of your salary to your pension fund, with your employer covering the rest. 

However, it’s important to note that Defined Benefit scheme benefits aren’t guaranteed. If the scheme’s funds are insufficient to cover the promised benefits and your employer can’t make up the difference, the benefits may need to be reduced. 

Defined Benefit schemes are becoming less common, with fewer employers offering them.

Benefits of Occupational Pensions

There are several benefits to joining an occupational pension plan, whether you’re an employer or an employee.

Benefits If You’re An Employer

Attraction and Retention of Talent

If you’re an employer, offering a pension scheme can attract high-quality employees and help you retain them over the long term, enhancing workforce stability.

Employee Morale and Loyalty

Providing a pension scheme demonstrates a commitment to the well-being and future of the staff. This commitment fosters a sense of morale and loyalty among employees, as they perceive the employer as invested in their long-term success and stability.

Tax Advantages

One notable advantage is that employer contributions to approved pension schemes are generally tax-deductible as allowable business expenses. 

This means that the contributions made by the you towards your employees’ pensions can be subtracted from the company’s taxable income, effectively reducing the amount of tax payable.

Competitive Advantage

Offering a pension scheme can give your company a competitive edge in the job market. It sets you apart from other employers who may not provide such benefits, making your organization more attractive to potential employees.

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Benefits If You’re An Employee

Retirement Security

If you’re an employee, occupational pension schemes can help you build a financial cushion for retirement, ensuring you have income after you stop working.

Read more about retirement planning and pensions in our article Retirement Planning in Ireland: Your Comprehensive Guide.

Employer Contributions

You can increase your retirement savings without having to make additional contributions out of pocket when your employer matches contributions to your pension plan.

For example, if you earn €52,000 annually and contribute 5% to your company pension plan, with your employer matching your contribution, both of you would contribute €217 monthly. 

Considering tax relief, your effective cost drops to just €130, allowing you to save more for retirement while paying less. 

This essentially means you’re receiving an extra €304 towards your pension pot, effectively free money!

How do company pensions work? - True Wealth

Tax Efficiency

The tax efficiency of company pensions allows you to save for retirement with potentially lower tax liabilities, making them an attractive option for long-term financial planning.

Investment Opportunities 

Occupational pension schemes often provide a range of investment options, allowing you to tailor your retirement savings strategy to your risk tolerance and financial goals.

Learn more about retirement planning and pensions by reading our Retirement Guide.

Get a Retirement Planning and Pensions Quote with True Wealth

Whether you’re an employer seeking to establish a pension scheme for your staff or an employee eager to grasp the intricacies of an occupational pension plan, our team is here to provide expert advice.

Reach out to one of our financial advisors at True Wealth for any assistance or enquiries you may have regarding pension schemes.

Additionally, gain valuable insights by exploring our Retirement Planning Guide, offering comprehensive knowledge to help you navigate the intricacies of retirement planning and pensions.

We are also experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth management and extraction.

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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.

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