Employer contribution to supplementary pension

What it means

An employer contribution to supplementary pension saving is an amount the employer pays into an employee's third-pillar account. It can be a voluntary benefit or a legal obligation for high-risk work. The money belongs to the employee and provides income in retirement.

For the employer, the contribution is tax-deductible up to a statutory cap linked to the employee's pay. For the employee it is taxable employment income, taxed through payroll even though the money goes not into their pocket but into an account with a supplementary pension company.

The employer must pay the contribution for employees whose work falls into the higher categories under the work risk categorisation. For other employees the contribution is part of the employee benefits package.

How it works in practice

The employer signs an employer agreement with a supplementary pension company that sets the contribution, for example a fixed amount or a percentage of pay. The employee must hold a participant agreement with the same company.

The contribution is a retention tool because it is a long-term advantage. Some employers make it conditional on the employee's own saving, for example by matching what the employee puts in.

In payroll the contribution is added to taxable pay, and in the accounts it appears among personnel costs. Employees can deduct their own third-pillar contributions from their tax base up to a statutory limit.

What to watch out for

For high-risk work the contribution is compulsory at a statutory minimum, and failing to pay it is a breach that labour inspectors check. The employer must keep track of how jobs are currently categorised.

Contributions above the deductible cap are not prohibited, but the excess is not a tax-deductible expense for the employer. When designing the benefit, the contribution burden under current rules must also be factored in.