Emplyers contributions.. free money.. rubbish.

Retired_I.F.A.

Many many times on this board folks say an employers contribution to a pension scheme is free money when it's not. Pensions are a part of pay, and were ruled as such by the European courts a few years back.

If you'd rather have the pay an isa or whatever instead of a pension contribution nothing is stopping you negotiating it with your employer, Although your more likely to get a result from a small employer than a big one where your just a number on a payroll.

Anyone done such?

PasturesNew

Many small employers don't pay a bean into anybody's pensions.

I've spent my working life working for small companies.
All promises not kept, low wages, no annual increases, no promotion opportunities, no pensions, no extra benefits, minimal holidays .... then they go under.

Retired_I.F.A.

Same happened to me mate, why do you think I went self employed as an IFA?

claretmatt

I'm sure you'll understand the two way street approach with employer pension contributions:-

Employees - contribution to pension

Employers - Reduced bottom line.

I don't think that employers get the same tax breaks for paying into an ISA and also the employer will not be able to pay into an ISA on an employees behalf.

Retired_I.F.A.

True but it's only a calculation to make an employers nett cost of a pension contribution equal an employees nett payrise.

Not meaning to go into the merits of pay/pension/isa though as really I just wanted to point out it's not "free money" as so many posters say it is.

dunstonh

It is free money. If you do your own savings you are paying the full amount. If you get a contribution from the employer then that is something you are not getting if you do your own.

Until 2012 there is no compulsion for employers to offer any pension provision.

An employer is highly unlikely to contribute to an ISA as a) it would breach ISA contribution rules and b) it is not as tax efficient for them.

Paul_Herring

An employer is highly likely to contribute to an ISA

ITYM highly unlikely

dunstonh

ROFL - what a place to make a typo

edited accordingly.

purch

It is free money

No it ain't...

I think the point the Retired Bloke is trying to make is that if your Employer makes a contribution for you it is part of your total remuneration package....not a free extra

Every Employer ( or at least those with any sense ) will have a total 'pot' to cover the cost of the direct Wages and Benefits and indirect costs of employing their workers. If they decide to make Pension Contributions on behalf of their employees then that cost will come out of the total pot

If you decide not to take advantage of the contribution, then you are giving your employer free money as it just increases his operating profits, because part of the total pot set aside for employment costs has not be used

If you consider an Employers contributions as 'Free Money' then you should also consider any other Benefit paid for by your employer, and maybe also your Wages/Salary as Free too !!!!!

dunstonh

Whats the point of looking at the costing from a corporate level when its the individual that matters?

If we assume a 5% matched contribution which is say £150pm. With the "free money" that means £300 goes into the pension before tax relief on the employees contribution meaning it has cost the employee £120 for a £300 contribution. If that individual wants to do an ISA they have to pay £300 to get the same contribution. £30 due to tax relief and £150 from the employer.

So, ignoring tax relief (which they can get themselves on a personal direct debit, the free money is the matched £150.

The employer will have it budgeted into their overall pay structure but it is free money to the individual.

purch

its the individual that matters

Yes.............and the individual should realise the reality of the situation, rather than thinking their employer is being extremely generous and providing 'free' money for their pension

A good friend of mine owns a medium sized Bus and Coach operator and he was telling me his situation at the moment. He has an amount that he can allocate for his employees annual pay review. How that money is split, whether on a higher % pay rise, or a higher overtime rate, or a better benefit package is up to the employees to negotiate, but the total package will be the same whatever they decide. That is the reality of the situation, not just in small businesses but everywhere