OREANDA-NEWS. February 08, 2012. The amendments to the tax system, effective since the beginning of the year, allow employers to make contributions not just in the form of salary but also make payments into their employees third pension pillar without it being treated as a fringe benefit. SEB is negotiating with a dozen or so companies which are keen to introduce this novel motivation tool, reported the press-centre of SEB.

The law as amended at the beginning of the year opens to Estonian companies a door that has been used for decades in the Western world ? an opportunity to better provide for the employees future together with the employer. The companies motivation to contribute to the employees pension scheme may vary greatly ? it is an additional tool to enhance an employers attractiveness in the labour market or it may be that a diversified motivation package helps maintain the employees loyalty and reduce staff turnover. Alternatively, it may be that an employers pension offer is a part of its corporate social responsibility policy, which aims to hedge its employees social risks in the future. This year, the Estonian labour market is likely to see the addition of quite a few employers who complement their salary offer with an opportunity for the employees to insure their future, said Indrek Holst, chairman of the Management Board of SEB Elu- ja pensionikindlustus.

This change in the tax law is a step in the right direction ? one that SEB in its role as an employer has been waiting for years. SEB uses the employers pension system in Latvia and Lithuania as well as in Sweden and now we are planning to introduce it in Estonia as well. Several business clients of ours are already using the employers pension and I believe that in the coming years a majority of successful companies will have this form of provision for pensions as part of their employee remuneration system," added Riho Unt, Chairman of the Management Board of SEB.

Pursuant to the amendment to Section 13 of the Income Tax Act, which entered into force on 1 January 2012, the contributions made by a company (employer) into the third pension pillar of an employee are exempt from income tax. Contributions are exempt from income tax to the extent of up to 15% of the disbursements made to an employee and subject to income tax in a calendar year with a ceiling of EUR 6000 per year. Earlier, a limiting factor to enjoying this opportunity used to be the fact that under the Income Tax Act, an employers payments into its employees third pillar were treated as a fringe benefit.

As from this year, an employer may, similarly to paying salaries, contribute to a pension fund contracted by the employee or into his or her third pension pillar under an insurance contract. Thus, any contributions of an employer towards an employees pension will be retained by the employee even if he or she changes the employer for whatever reason.