Employer Pension contribution as part of Redundancy

[DonKing]

As Employer pension contributions can now be up to 100% of employees salary, is an employer permitted to pay into employee pension instead of an ex-gratia payment when employee made redundant? Could the employee receive an ex-gratia payment and increased employer pension contribution?

 

[JoeRoberts]

Are there other emplyees getting an ex gratia payment , or has it been custom and practice in the past that it is given ?

 

[DonKing]

Any ex gratia payments in the past would have been on a confidential basis and signed off by a NDA. No group wide offers of redundancy

 

[JoeRoberts]

Well then I think it would be viewed as salary sacrifice which is not allowable.

 

[DonKing]

I can except how a bonus, holiday pay or payment in lieu of notice would all be deemed as salary sacrifice if an attempt was made by an employer to put into an OC pension. But a payment by a company beyond statutory redunndacy is at the discretion of an employer. I cant see anywhere were is says that it not impossible for an employer to both put an additional employer contribution to pension and an ex gratia payment. Im contacting a couple of tax advisors for their opinion but I wanted to see if anyone on this forum may have any experience with it. Thanks for your post

 

[JoeRoberts]

. Im contacting a couple of tax advisors for their opinio

Why a couple ? What if one says yes and another no ?

 

[DonKing]

A couple is better than one.....a 2nd opinion just like a medical 2nd opinion. Not sure why you would question getting more than one opinion.

 

[kierane]

I would think it is very clear that many Company owners will be doing exactly this to their own Executive pensions.
I'm sure your advisors will confirm it is allowable but unless it's for senior people (and maybe with NDA), they will probably not want to do it and set up a precedent that they might not be able to or want to repeat later. Nothing to stop anyone maximising contributions for previous year and current year and getting the tax back and/or carrying the excess contributions forward but benefit for growth now.

 

[JoeRoberts]

Z

I'm sure your advisors will confirm it is allowable

Why do you think this ?
Op is using up the max tax free ex gratia allowance. Instead of paying tax on the balance like everyone else he wants employer to put it into his pension.

The only opinion that matters is that of Revenue

 

[DonKing]

Instead of paying tax on the balance like everyone else he wants employer to put it into his pension.

You make it sound like im trying to pull a fast one! New revenue rules introduced in 2025 allow employers to make pension contributions up to 100% of salary. Obviously everyone else didn't have to consider if this was a possibility up to 2025/26

 

[JoeRoberts]

The change to 100% makes no difference to the principle. Just a bigger number.
I understand you logic, salary sacrifice for pension is specifically allowed in the Uk but not here.

Any arrangement under which an employee waives an entitlement to remuneration or accepts a reduction in remuneration, in return for a corresponding payment by the employer into a pension scheme, is considered to be an application of the income earned by the employee rather than an expense incurred by the employer. Such arrangements are subject to section 118B TCA, which deals with salary sacrifice arrangements.”)

 

[DonKing]

There is no entitlement to the ex-gratia payment and how much is paid is completely at the discretion of the employer. Is there anything to say that an employer cannot pay into an employees pension in the final year before the employee is made redundant? Is the issue related to how close the pension contribution is made to the termination date of employee employment contract.

 

[DonKing]

I'm thinking that an employer may propose to bump up the employees pension by €X before termination and offer an ex-gratia payment of €Y on termination. The employee was never offered an ex gratia payment of €X + €Y.

 

[kierane]

There is no entitlement to the ex-gratia payment and how much is paid is completely at the discretion of the employer.

Thanks for jumping in! That was my reading of an innocent question by OP.
It is many years ago now (more than 30), but an old employer of mine did this when my marginal tax rate was 60% (excluding PRSI). It saved him money too so win-win!