Question:
I receive a salary of which 60% of the total cost to company is considered retirement funding income. Of this 60%, 7.5% goes to a pension fund as employee contribution, and 12.5% goes to the pension fund as employer contribution. Ignoring bonuses and other income, I thought that 40% of my total cost to company would be considered non-retirement funding income, of which I could contribute 15% to my retirement annuity. However, on my tax certificate, my non-retirement funding income is calculated as 40% of cost-to-company less employer contributions to pension fund. Why is it like this?
Answer:
Ryan,
The employer's pension fund contribution is not "income". Your employer's contribution forms part of your total cost to company but this is effectively paid by way of a salary sacrifice. If it were otherwise, you would effectively be claiming a 15% retirement annuity deduction against your employer's pension fund contribution.
