One of the most frequently asked questions relating to umbrella companies is: “how do pensions work with an umbrella company?” To help our readers understand umbrella company pensions, we’ve created a short video that explains the basic information you need. Please keep reading to see the video and the supporting transcript. We’ve also included a link to the new Umbrella Companies YouTube Channel, which is full of helpful videos about umbrella companies.
Video transcript – How do pensions work with an umbrella company?
Employers in the UK are legally required to enrol their employees into a workplace pension scheme, and contracting through an umbrella company is no different. As the umbrella company will become your employer, they’re legally required to enrol you onto a workplace pension scheme after 12 weeks of employment.
Umbrella companies will have their preferred pension provider, which will vary between providers. However, NEST (the government’s pension provider) is the most commonly used one. The minimum contribution set by the government that you and your employer can pay into your pension is 8% – split into 5% employee and 3% employer.
Like the other employment costs, such as the employer’s national insurance and the apprenticeship levy, the employer’s pension contribution is taken from the assignment rate your umbrella company receives from your recruitment agency or end client. The employee pension contribution will be deducted from your gross rate of pay.
There are many benefits of saving for retirement with a workplace pension scheme. One of the main benefits is that the money is automatically paid into your workplace pension pot each time your umbrella company processes your payment. You don’t need to worry about managing your pension as the pension provider will take care of everything, allowing you to increase your retirement income beyond your state pension amount. You can also receive tax relief on money paid into your pension as it comes directly from your earnings.
Don’t worry; if you decide you don’t want to contribute towards a pension scheme or you have an existing pension scheme in place, you can opt out. If you wish to opt-out, contact the pension provider directly, not your umbrella company. You will receive all the relevant information about the pension provider when enrolled in the pension scheme. If you are unsure what to do, your umbrella company should be able to point you in the right direction.
You must also wait until your first pension contribution is made before opting out. You’ll be refunded if you opt out within 30 days of your first contribution. If you opt out after 30 days, your contributions will be stopped, but you won’t be refunded.
Some umbrella companies will also offer employees the option to contribute higher amounts of their salary towards a personal pension pot through salary sacrifice. Salary sacrifice is entirely separate from the workplace pension scheme, and some umbrella companies will be able to assist you with setting up salary sacrifice for pensions. By using salary sacrifice, pension contributions are not subject to tax or national insurance deductions. Therefore, as you can contribute more than the standard contribution towards your pension if using the workplace pension scheme , salary sacrifice is a very tax-efficient way to save for retirement.
Salary sacrifice isn’t going to appeal to everyone as the increase in pension payments means the amount you are paid in salary each week or month is reduced. However, if you are interested in salary sacrifice, have a look and see which umbrella companies can assist you.
Have you visited the Umbrella Companies YouTube Channel?
Please check out our new YouTube Channel. It’s full of helpful videos that answer the most commonly asked questions about umbrella companies. We are also adding new videos on a regular basis!
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