Umbrella Companies | Contractor Pensions

Pensions for umbrella company contractors

When contracting through an umbrella company, they’re legally required to enrol you onto a workplace pension scheme after 12 weeks of employment.

Umbrellas will have their preferred pension provider which all their employees will are enrolled onto. The pension provider will vary between umbrella companies but the most commonly used one is NEST (the government pension).

The minimum contribution set by the government that you and your employer can pay into your pension is 8% – this is usually split into 5% employee and 3% employer.

Should you decide to continue with your pension contributions, you will notice on your payslip that both the 5% employee contribution and the 3% employer contributions are being deducted. This is because while you are paid via an umbrella company – you’re not working for them. Therefore, you must consider pension contributions when deciding whether or not to take a contract role. If you want to contribute to a pension, make sure you’re satisfied that an uplift has been included in your assignment rate before taking the job. Remember, the figure you agree (assignment rate) must take into consideration the employment costs that arise when paid by an umbrella company.

There are many benefits of saving for retirement with a workplace pension; these include but are not limited to:

  • The money is automatically paid into your pension pot each time your umbrella company processes your pay, allowing you to increase your retirement income beyond your state pension.
  • You don’t need to worry about managing your pension as the pension provider will take care of everything for you – sit back and watch your savings grow!
  • You can receive tax relief on money paid into your pension as it comes directly out of your earnings.
  • A lot of people don’t even notice they are paying into a pension as it is only a small amount each month. However, it can make a lot of difference later in life.

Don’t worry; if this is not something you are interested in or you have an existing pension scheme in place, you can opt-out of the workplace pension scheme with your umbrella company.

Salary Sacrifice

A salary sacrifice arrangement is an agreement to reduce your salary, and in return, your employer will give you a non-cash benefit, such as an increased pension. A salary sacrifice scheme is particularly useful if you have an existing pension scheme in place which you want to continue paying into or would like to make larger contributions towards your pension.

Once you accept a salary sacrifice, your overall pay is reduced by the amount you are sacrificing. This is beneficial as your salary sacrifice is not subject to National Insurance Contributions (NICs) or Income Tax. As your earnings have been reduced, less tax and NICs are due. Salary sacrifice is a great way to control the amount you are saving each month and gives you the freedom to contribute more to your pension pot than a workplace pension.

Not all umbrella’s will offer salary sacrifice due to the challenges faced when implementing it into their existing payroll software. If it is something you are interested in, always double-check before you register that your chosen provider can accommodate salary sacrifice.

Check out our directories for a list of useful services

To make your life easier, we’ve created a list of useful directories so you can quickly search for a service you need. From our directory of contractor financial services to contractor accountants and umbrella companies, we have made sure only to include industry bodies that are dedicated to ensuring the supply chain and services available to contractors and freelancers are compliant and ethical.

For an even simplified list, why not check out our top 10 accredited umbrella companies and see what they have to offer! There is no better way to browse industry-leading and see how they help you with your payroll. Oh, and every business in our top 10 is an FCSA accredited umbrella company.

Click here to see our top 10 umbrella companies!
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