Obligatory occupational pension (OTP)
Most employers are required to set up an occupational pension scheme for their employees.
The following are covered by this obligation:
- Enterprises with at least two employees who both have working hours and salary amounting to 75% or more of a full-time position.
- Enterprises with at least one employee who has no owner interests in the enterprise and whose working hours and salary amount to 75% or more of a full-time position.
- Enterprises with employees who have working hours and salary amounting to 20% or more of a full-time position, provided that they collectively carry out work corresponding to at least two full-time equivalents.
When an employer is obliged to set up an occupational pension scheme, all employees aged 20 or over with a full-time equivalent percentage of 20 or more must be registered as members from their first working day. The pension scheme must be created within six months after the obligation to establish an occupational pension scheme was triggered. If you as employer do not set the scheme up by the relevant deadline, you will have to make the payments that should have been made in accordance with the law retrospectively. The business will be entitled to tax deductions for payments to the pension scheme. Employer's National Insurance contributions must be calculated on the pension payments and costs linked to the agreement.
Two types of obligatory pension schemes/pension schemes
The Act on obligatory occupational pension states that the scheme must be either defined contribution-based or benefit-based. It is up to the employer to decide which type of scheme should be set up.
With a defined contribution scheme, the employer's expenses for the pension scheme will be fixed, while the pension amount will partly depend on how much has been paid in and the return on the contributions. In the case of a defined contribution scheme, a minimum of two percent of the employee's salary must be deposited in a pension fund, but the company can choose a better scheme and the employees can contribute their own savings within certain limits.
With a benefit-based scheme, the pension is predictable for the employee, while the enterprise's expenses will partly depend on age and salary level and can therefore vary from year to year. The pension amount will generally be set to a specific proportion of the employee's salary at retirement age.
For more information, contact an insurance company that offers pension schemes.
Voluntary defined contribution pension scheme for self-employed persons and freelancers
If you are self-employed and have no employees (owner of a sole proprietorship or partner in a general partnership) or a freelancer, you can choose whether you want to set up an occupational pension scheme. If you enter into an agreement concerning a defined contribution pension scheme, you can pay up to 6% of your annual business income between 1 G and 12 G (National Insurance basic amounts) into the pension scheme. The business will be entitled to tax deductions for payments into the pension scheme. Employer's National Insurance contributions should not be calculated.