From 1 January 2015, the maximum amount that an individual can save in their pension without incurring a tax charge will be reduced. Companies need to act now to ensure that their pension plans comply with the new rules.
From 1 January 2015, the maximum amount of pension that an individual can build up over their working lifetime without incurring tax (known as their tax favourable pension accrual) will be reduced to 75% of their average salary over 40 years of employment. For the purposes of this accrual, salary will be capped at €100,000. Those earning above €100,000 will be able to make additional, tax-free savings into a separate annuity account.
What does it mean for employers?
By 1 January 2015, company pension plans will need to be adjusted to take account of this reduced accrual rate and salary cap, in order to continue to qualify as a tax favourable pension scheme under the Wages and Salaries Tax Act 1964. Failure to do this could result in employee pension contributions becoming taxable.
Any change to a company pension scheme constitutes a change to employment conditions. Companies will need consent for this change from trade unions, works councils and/or individual employees, and may also need to agree the adjusted terms with their pension plan provider. All of this can take time and employers are advised to start the process of negotiation now.
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