Can Umbrella Companies Have a Pension Scheme?Can Umbrella Companies Have a Pension Scheme?
{ Umbrella Company Pension Schemes — Everything You Need to Know |} Pension schemes assist employees put money aside for retirement directly from their own commission. The problem for self-employed professionals is they need to manage themselves,either by setting up a retirement strategy or saving cash from their earnings. Fortunately,umbrella companies course contractors as employees,providing them all of the benefits of employment. Including a pension scheme,which requires contribution from the umbrella company too. Let’s take a closer look at the statutory pension schemes available through umbrella businesses. Auto-enrolment pensions {In 2012,the UK Government decided that workers weren’t saving enough for their retirement. |} People were relying on the State Pension,that had not received sufficient funding to coincide with the ongoing increase in life expectancy and an ageing population. {To combat this,they introduced automatic enrolment. |} The new system,rolled from 2012 to 2018,requires companies to automatically enroll qualified employees on a workplace retirement strategy. Employers will also be responsible for deducting donations from their pre-tax income and creating a minimum statutory contribution to the employee’s savings. In October 2012,this minimum donation has been set to 1 percentage for employees,that was matched by companies,rising in 2018: October 2012 to 5th April 2018: companies 1%,employees 1 percent 6th April 2018 into 5th April 2019: companies 2%,employees 3% 6th April 2019 onwards: employers 3 percent,employees 5% However for anybody that does not want to donate to a pension as soon as you’re registered it is still possible to opt out. Umbrella company pension scheme {Working through an umbrella company,contractors are classed as an employee. |} That means,yes,you are automatically registered on the umbrella company’s pension scheme provided that you fulfill the following criteria: Your work is primarily UK-based You earn greater than #10,000 annually You are between 22 and the state pension age. Until 5th April 2019,3 percent of your pre-tax salary will proceed into a pension fund,with the umbrella company leading to a further 2%. By 6th April 2019,5 percent of your pre-tax salary will probably enter the exact same pension fund,with your umbrella company contributing a further 3%. The Advantages of an umbrella company retirement Some contractors can worry that this will eat away at their salary. Don’t. {Pension contributions are made prior to your wages are taxed. |} That means anything that goes out of your wage in your pension fund is tax-free rather than being taxed at 20% or even 40%. So,instead of getting 60% of your earnings,you get 100% via a pension fund. Let’s say you earn over #46,351 annually,which sets you in the higher rate band of income tax. {Anything you earn beyond that #46,351 annually (approximately #3,863 per month) is taxed at a rate of 40%. |} You receive just #60 for every #100 of revenue. Why not place the full #100 straight into the retirement fund rather? That’s the reason why many people,especially those in the higher rate band of income tax,choose to place more than the minimum in their pension fund. And this is entirely possible. Contractors can contribute to #40,000 to their pension scheme each year,comprising tax-free income and company contributions. At this time,there’s a life allowance of #1,030,000 that can be donated before incurring any tax. With your budget {With the increased earnings of contracting,it’s common for contractors to retire early. |} As an alternative,you may simply wish to find some of the cash out for a vacation,new car or home improvement. The good news isthat you don’t need to wait till the state pension age to access the pension capital you have assembled through your umbrella company pension. As soon as you’re 55 or over,you are able to access up to 25% of your pension pot as a tax-free lump sum. Anything beyond the 25% will be taxed as an accession to the rest of your earnings that tax year — either20% over #11,850,40% over #46,351 or #45% over #150,000,as things now stand. That’s why most people decide to take their pension as regular income as soon as they’ve retired,to minimise the amount of tax paid. {Contractors who operate as a limited company can still benefit from the tax aid of a pension scheme. |} However,as with the majority of things regarding limited companies,this needs a lot more effort on their part. Firstly,they must find the right balance between salary and dividend payments to boost the limit in their pension contributions. Because employer contributions,such as pensions,count as a business cost,they are subject to tax relief. Thus,when you donate to your retirement strategy,as a manager,the company could save money in business tax. But this has additional complications because it ought to be completely compliant as an allowable cost. Any other employees,for instance,ought to be given comparable packages to prove to HMRC that it’s a genuine business expense. In addition to all that,using a limited company retirement scheme entails setting up and paying into the pension fund yourself. Along with the rest of the administrative work for limited company owners,it’s definitely worth seeking advice and assistance from a trustworthy accountant. Get the right assistance Whether you are looking to compare umbrella companies or find the right accountant,you are able to make the right decision with limited company vs paye. Our online comparison tool allows you assess numerous businesses in a couple of minutes. It couldn’t be easier to take the hassle from contracting. Contact us today for more information.