As an employer, umbrella companies are legally required to enrol their employees into a pension within three months. This blog will provide an overview of pensions with an umbrella company. There is the option to opt out of pension contributions, as we will explain.
An overview of workplace pensions
Employers in the UK are legally required to enrol their employees into a workplace pension. Pensions are designed to help workers save towards their retirement by putting a small amount of their salary aside each time they’re paid. Contractors and freelancers who engage with umbrella companies will be automatically enrolled into a pension within three months of registering. Some exceptions do apply, but usually, if you’re between 22 and the state pension age and earn upwards of £10,000 per year – you’ll be enrolled.
Employers have up to three months to enrol their staff into a pension scheme. Umbrella companies usually take advantage of this timeframe and will auto-enrol their employees after 12 weeks. This is because many umbrella employees work on short-term assignments that are shorter than three months. If a worker was to be enrolled into a pension every time they changed umbrella companies, it could become mightily frustrating, and the administration will be time-consuming. Delaying auto-enrolment until 12 weeks of employment is usually the preferred option for umbrella companies and their employees.
Unlike permanent employees, umbrella company employees will be responsible for both the employees’ pension contribution (5%) and the employer’s contribution (3%) – totalling 8%.
Opting out of pension contributions
Contributing towards a pension with an umbrella company has its advantages and disadvantages. If you decide you don’t want to contribute towards a pension scheme for whatever reason, you’ll be pleased to know that you can opt out, and doing so is easy. However, there are a few essential things to remember.
Firstly, you must contact the pension provider directly and not your umbrella company to opt out of pension contributions. When you register with an umbrella, you should be sent all of the relevant information about pensions. If you’re not sure what to do, your umbrella should be able to point you in the right direction.
Secondly, while opting out of pension contributions is easy, you must wait until your first contribution has been made. While this may be annoying, it’s a government requirement. Assuming you opt out within 30 days of your first contribution, you’ll be refunded.
Thirdly, it’s worth reiterating that umbrella companies are legally required to auto-enrol their employees into a pension scheme. All compliant umbrella companies will follow HMRC’s rules and regulations.
If you’re keen to save for your retirement, salary sacrifice could be the answer. While it’s not favoured by most, salary sacrifice could help you save for your retirement in a tax-efficient manner.
Salary sacrifice for pensions allows employees to contribute more considerable sums into their personal pension pot. Pension contributions are not subjected to tax and National Insurance Contributions. Therefore, salary sacrifice is a very tax-efficient way to save for retirement.
Salary sacrifice is ideal for those who:
- Are close to retiring
- Have additional sources of income
- Have a large income
- Want to take advantage of tax-efficient saving
- Are happy to have less salary
If you are interested in salary sacrifice with an umbrella company, you’ve come to the right place. Umbrella Company UK offers salary sacrifice to all our employees, and we’re partnered with a leading wealth management specialist that can help you set up a personal pension – if required. Please get in touch with us for more information.
Pensions with Umbrella Company UK
Umbrella Company UK’s preferred pension provider is NEST. Our employees will be automatically enrolled into NEST after 12 weeks as an employee of Umbrella Company UK. We will send all the information you need you upon registration. Should you wish to opt out of pension contributions, please get in touch with NEST directly. However, please do not hesitate to contact Umbrella Company UK if you have any questions about pensions or you would like assistance.
Umbrella Company UK
Umbrella Company UK is the first-choice umbrella for thousands of contractors and freelancers. We are committed to providing excellent customer service and compliant PAYE payroll, and we’re proud to be an accredited member of the FCSA. The FCSA is the UK’s leading professional body dedicated to ensuring the supply chain of temporary workers is compliant with UK tax law. We believe that our FCSA accreditation is the perfect way to showcase our commitment to compliance within our sector.
If you are interested in joining Umbrella Company UK, please complete the short form here or give our friendly Sales Consultants a call on 01707 669023. Alternatively, you can request a free and tailored umbrella company take-home pay calculation or schedule a call back for a time that suits you.