Most employers are obliged to have an occupational pension scheme for their employees.
The following employers fall under the scope of the act:
- Enterprises where the working hours and pay of at least two persons in the company correspond to 75% or more of a full-time position
- Enterprises where the working hours and pay of at least one employee without ownership interests in the company correspond to 75% or more of a full-time position
- Enterprises employing people with working hours and pay corresponding to 20% or more of a full-time position, provided that the work they carry out total at least two full-time equivalent years.
The pension scheme must be established within six months of the date on which the obligation to have an occupational pension scheme arose. If the employer fails to comply with this obligation, the employees are entitled to back payment by the employer of the amounts that should have been paid pursuant to law.
No tax shall be deducted from the enterprise's pension contributions, but they must be included in the basis for the employer's National Insurance contributions.
Mandatory occupational pensions (OTP) schemes must include old-age pensions and exemption from payment of contributions/premiums in the event of disablement. The enterprise can voluntarily include other benefits in the pension scheme, for example disability pension and surviving spouse's pension.
With a defined-benefit scheme, the pension benefit is predictable for the employee, while the enterprise's expenses will depend partly on age and salary levels. Normally, the pension benefit will be defined as a certain percentage of the employee's pay when he/she reaches retirement age.
A defined-contribution scheme means that the employer's expenses relating to the pension scheme is fixed, while the pension benefit depends partly on the amount paid in and the return on the contributions. In defined-contribution schemes, a minimum of two per cent of the pay must be deposited in a pension fund, but the enterprise can choose a better scheme and employees can contribute by saving for themselves within certain limits.
The type of occupational pension scheme chosen by an enterprise can have considerable consequences for individual employees. Insurance companies, banks and securities firms all provide solutions that meet the OTP requirements.
Enterprises that are not under an obligation to establish a pension scheme can nevertheless choose to do so. This option is open to self-employed persons, partners in general partnerships and employed owners of limited companies or public limited companies. A freelancer can also establish a voluntary pension scheme.