It is usually in a company’s best interest to keep the best of the crew on board, but it’s not easy in the face of competitors who offer better remuneration packages. Employees are no longer content to work for one firm for the rest of their lives without sufficient compensation, but the loss of staff members with special skills or knowledge can impact the financial health of a business.
While salary increases may provide one solution but the PREFERRED COMPENSATION PLAN provides an alternative, win-win benefit to both employer and selected employees.
Benefits to employer
Benefits to employee
Inflation erodes large portions of even the most comfortable retirement plan. And because people live a lot longer these days, retirement money has to be spread over a longer period.
As a business owner, it is your responsibility to help your employees select a suitable retirement option. AMBITON can help. We will assist in your selection of the most suitable retirement plan for your company and, as required by law, we will help you communicate the plan clearly to your employees. The nuts and bolts need to be laid out:
What is the difference between a provident fund and a pension fund?
They are both funds so, in both, the benefits at retirement are dependent upon investment performance. The key differences lie in the way fund contributions are treated for income tax purposes and in the way the benefits are paid out.
Contributions to provident funds made by employers are tax deductible while contributions by members are not. To counter this, in many cases members do not contribute but let their employers make a bigger contribution.
Members' contributions to pension funds are tax deductible up to certain limits, as are those by employers.
The other difference: the way the funds' benefits are paid out. A provident fund's benefit is fully available in cash at retirement. By contrast, a pension fund is restricted to providing a maximum of one third in cash. A monthly pension has to be bought with the remaining two-thirds.
If you so wish, and if the fund rules allow it, you may buy a pension with the proceeds of a provident fund - and here you are not limited to taking only one-third in cash.
The tax on lump sums is the same using the normal retirement tax formula. Remember that as things stand, any money used to buy a pension will not be taxed as a lump sum but the pension itself will be taxed as income.
In some ways a provident fund provides greater flexibility than a pension fund, mostly because of the freedom to choose the proportions of cash and pension at retirement.
Group life assurance provides for the payment of a lump sum benefit on the death of an employee.
The benefit is usually a multiple of the member’s annual salary (standard maximum multiple of 10 times) OR a specified, predetermined benefit amount. Estimated tax replacement cover can also be provided for, which will provide a net payment (after tax deductions).
With this retirement plan, the company sets aside a certain amount each year for the benefit of the employee. These funds are known as "money purchase" or "fixed contribution" funds.
The rules of the fund specify the contributions to be paid by the employer and member but do not guarantee the retirement benefit. There are restrictions as to when and how you can withdraw these funds without penalties. And there is also no way of knowing how much the plan will ultimately give the employee upon retiring. The amount contributed is fixed, but the benefit is not.
The benefits are dependent on the following factors:
This is an employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.
With so many options available, it is best to get expert guidance before sealing your financial fate. Call AMBITON for straight talking, confidential advice and assistance.