How to persuade your boss to give you a pension

by Ed Bowsher on 31 March 2011  |  0 comments
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Pensions are a cheap way for employers to reward their staff.

Does your employer operate a pension scheme? Sadly, many don’t. If your employer doesn’t contribute to a pension scheme for you, I urge you to campaign for better treatment.

And here’s your best argument. Tell your boss that pensions are a cheap way to reward staff.

If an employer pays £1 into your pension pot, your pot grows by £1. You don’t pay any tax, your employer doesn’t pay any tax, and your pension provider doesn’t pay any tax either.

But if your employer wants to put £1 into your take-home wage packet, it costs a lot more than £1. In fact, it costs £1.67! All thanks to the taxman taking a substantial cut. Here’s what happens....

Firstly, an employer has to pay Employer’s National Insurance on wages. This is charged at 13.8%. Then on top of that a basic rate taxpayer has to pay 20% income tax as well as Employee’s National Insurance at 12%. If the employee is going to get £1 in take home pay, the employer has to spend a total of £1.67.

Here’s the maths bit:

1.138*1/(1-0.2-0.12) = 1.67

To put it another way, if an employer starts with £1 which it wants to give to an employee in wages, the employee will end up with only 60p - once both sides have paid all the relevant taxes. Not good.

Some of you may be saying that this article is ten years too late. That’s because the government is introducing a scheme that will force employers to make pension contributions for all staff. The scheme is known as NEST and the implementation will begin next year.

However, the scheme will only affect larger companies initially and some employers won’t have to join up till 2017. I think six years is too long to wait for a pension, so if there is no scheme where you work, I suggest you ask your employer to change tack as soon as possible.

Yes, times are hard, and some employers will say 'no', but it’s worth a try. And heck, your boss may not even realise that pension contributions are a really tax-efficient way to reward staff!