Various Occupational Pension Plans are offered today in Cyprus offering substantial benefits are offered to Employers today, enabling all working people to supplement their retirement income. These Occupational Pension Plans are governed by Class VII of the Insurance Services and Other Related Issues Law 35(I)/2002: Management of Group Pension Funds or Provident Funds.
Studies have shown that, in order to maintain an adequate standard of living during retirement, pension income should equal approximately 80% of one’s final salary. According to the World Bank, there are three Pillars via which the latter may be achieved. The first pillar is the mandatory state pension, provided in Cyprus by the Social Insurance Fund, although this only guarantees a minimum pension to cover basic needs. In order to maintain a reasonable standard of living after retirement, this income needs to be reinforced by an occupational pension (second pillar), as well as an individual pension (third pillar). Contributing towards all three pillars is an effective method to achieve the desired pension income. The earlier we start contributing towards these, the greater chance we have of achieving a decent retirement without having to extend our retirement age.
Savvas P. Christoforou
CLU FLMI MBA LUTCF
Chartered Insurer
…to maintain an adequate standard of living during retirement, pension income should equal approximately 80% of one’s final salary
Everyone should be able to contribute towards their retirement through an occupational pension scheme. Regardless of whether employers contribute towards their employees’ pension, they ought to offer the facility, since employees themselves cannot access an occupational pension scheme unless it is set up by the employer. In the UK for example, it is a requirement for every employer to enrol their employees to a pension scheme. Employers that offer a pension scheme to their people and contribute towards it are more likely to attract and retain employees. They are also likely to attract a higher caliber of employee and be an employer of choice in a situation where job applicants must choose between two potential employers. Furthermore, employer contributions to approved pension schemes qualify for tax deductions.
Occupational Retirement Plans are subject to the supervision of the Superintendent of Insurance who reports to the Ministry of Finance. The Plan is governed by Class 7 of the insurance legislation – “Management of Group Pension Funds”. They are approved Provident Funds for tax treatment purposes.
Each Plan has its own investment manager which develops his investment approach over time and generally focus on the following areas:
(e.g. Value at Risk and Scenario Analysis).
Maintaining the bulk of the managed capital of the Investment Funds in highly liquid investments.
Each employee may choose the way his/her Account is invested through a variety of investment options.
The amount that the member will receive upon retirement will greatly depend on the performance of his/her investment choices as well as the amounts of contributions made into Plan.
The Occupational Pension Plans have highly trained personnel to service the employer and the employees for administration and management of the Plan and of the member accounts. All the service it done through specialized call centers available to the members of the plan for any enquiries and clarifications.
Furthermore, members of the Plan will be provided with annual statements regarding the Plan’s assets and returns and will have access to online information to their account at any time. Members can also be given direct information at any time upon request.
Occupational Pension Plans are approved Provident Funds for tax treatment purposes, and provide the following tax treatment:
Any contributions made by you in the Plan as an employer are deductible from the taxable income up to the amount of 10% of the salary of each employee who is a member of the Plan.
If a member pays his own contributions in the pension Plan, the amount of these contributions is deducted from his/her income for tax calculation purposes.
This means he will pay income tax only on his remaining income, ensuring a great way of making savings towards his/her retirement as well as reducing his tax costs.
Applicable legislation limits the amount that each member can contribute in the Plan every year as well as the amount of tax relief to which he/she is entitled. This amount is 10% of the employee’s annual income after considering the relevant provision which limits this amount to 1/6th of the income.
Unlike other ways which are available for making savings according to the applicable legislation, Occupational Retirement Plans have the potential for tax deductions on investments. This means that the Plan ensures additional income from investments which are credited to the member’s account until the date of his/her retirement when he/she finally receives the pension benefits.
Normally the cost for Occupational Plans arises from two separate fees:
This is a fixed lump sum charged per member, based on the total number of members who will join the Plan.
This is a percentage of each member’s account balance. This fee does not add cost to the employer as it is deducted directly from the member’s account.
Pension statistics in Cyprus are alarming as recent studies have shown. Contributing towards an occupational pension should be a matter of priority for each one of us. Regardless of how close we are to retirement; it is never too late to start.
Disclaimer
All details above are for general information and describe in general, how Occupation Retirement Plans work in Cyprus. Details may vary from Plan to Plan.
If you want to learn more details on how to start an Occupational Pension Plan for you and your employees fill out the below form and we will contact you shortly
