EFRBS or Employer Funded Retirement Benefits Scheme is an unregistered pension scheme that is beneficial to both, the employer and the employee. For the employee, since this scheme is not subject to the annual limits that usually apply to contributions made in registered pension schemes, there is a scope of accumulating larger amounts towards their retirement funding. Employers benefit from it as no employment tax or national insurance contribution needs to be paid on the employer’s contribution. In addition, several benefits can be made use of through using EFRBS such as exemption from capital gains tax on sale of capital assets and exemption from inheritance tax.
How employees benefit from Employer Funded Retirement Benefits Scheme:
● Employees who earn an annual income over £170,000 have a restriction on the amount that can be invested in registered pension schemes. Hence, they cannot reduce their tax liability beyond a certain level by investing in regular pension schemes. However, there is no such restriction on EFRBS as it is an unregistered scheme.
● Other categories of employees who can benefit from investing in Employer Funded Retirement Benefits Schemes are those who are nearing the limit of the lifetime capping on investments in registered pensions schemes, employees who are not domiciled in the UK or are planning to retire abroad and employees who are nearing retirement.
How EFRBS benefits the Employer:
● For companies, investing in this scheme has the dual benefit of providing retirement funding for the employees as well as tax planning. This is especially true for small and medium enterprises that are owned and managed by the same persons, as Employer Funded Retirement Benefits Schemes can help them fund their retirement without having to take small salaries to reduce their tax liability and at the same time reduce tax liability of the company.
● Since corporate tax deduction can be claimed only when benefits are paid out, EFRBS can benefit those companies that are not affected by the postponement of the tax deduction.
● For companies that pay out large bonuses, which are subject to tax, investing the bonus amounts into this scheme as an alternative can reduce tax liability to a large extent.
It is important to note that contributions to the EFRBS can be made and controlled only by the employer. The safety of a particular scheme depends on the investments made by the fund. Hence, it is always advisable to get expert advice before choosing a suitable scheme to invest in.
EFRBS 