ACCA Taxation (F6) Practice Exam

What is a benefit of employer contributions to a personal pension scheme?

1. It increases the employee's taxable income

2. It is an exempt benefit to the employee

3. It is a non-deductible expense

4. It is a mandatory payment to the pension scheme

The correct answer is: It is an exempt benefit to the employee

Employer contributions to a personal pension scheme are classified as an exempt benefit for the employee. This means that the contributions made by the employer do not count towards the employee's taxable income. As a result, the employee does not owe income tax on these contributions, which can significantly enhance their retirement savings without increasing their tax liability in the current year. This tax-exempt treatment serves as a significant incentive for both employers and employees to engage in pension saving. For employers, making contributions to an employee's pension scheme can be a tax-efficient way to provide additional benefits while enhancing employee wellbeing and retention. In essence, by making contributions, the employer supports the employee's future financial stability without impacting their immediate tax situation. The other options reflect misunderstandings about how employer contributions function within the taxation framework.