Do Umbrella Businesses Have a Pension Scheme?

{ Umbrella Company Pension Schemes — What You Need to Know |} Pension schemes assist employees put money aside for retirement directly from their wage. The issue for self-employed professionals is thatthey will need to manage themselves,by simply setting up a retirement strategy or saving money from their income. Fortunately,umbrella companies class contractors as employees,providing them all of the advantages of employment. Including a retirement scheme,which requires contribution from the umbrella company also. Let us take a closer look in the statutory pension schemes available through umbrella businesses. Auto-enrolment pensions {In 2012,the UK Government decided that employees weren’t saving enough for their retirement. |} People were relying too muchon the State Pension,that hadn’t received adequate funding to coincide with the ongoing increase in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled outfrom 2012 to 2018,requires companies to automatically enroll qualified employees onto a workplace retirement strategy. Employers are also responsible for deducting donations from their pre-tax income and making a minimal statutory contribution to the employee’s savings. In October 2012,this minimal donation has been set to 1 percentage for employees,that was matched by companies,increasing in 2018: October 2012 to 5th April 2018: companies 1 percent,employees 1 percent 6th April 2018 to 5th April 2019: companies 2%,employees 3 percent 6th April 2019 onwards: employers 3 percent,employees 5% However for anybody that does not want to donate to a retirement as soon as you’re enrolled you can still opt out. Umbrella company pension scheme {Working through an umbrella company,contractors are recognized as an employee. |} That means,yes,you are automatically enrolled onto the umbrella company’s pension scheme as long as you meet the following criteria: Your work is primarily UK-based You earn greater than #10,000 per year You’re between 22 and the state pension age. Until 5th April 2019,3 percent of your pre-tax salary will go directlyinto a retirement fund,together with the umbrella company leading to a further 2%. From 6th April 2019,5 percent of your pre-tax salary will go into the same pension fund,together with your umbrella company contributing a further 3%. The benefits of an umbrella company retirement Some contractors can worry that this will eat away in their wages. Don’t. {Pension contributions are made before your wages are taxed. |} That means anything which goes out of your wage in your pension fund is tax-free instead of being taxed at 20% or even 40 percent. So,instead of receiving 60% of your income,you get 100% via a pension fund. Let us say you earn over #46,351 per year,which sets you in the higher rate band of income tax. {Anything you earn beyond that #46,351 per year (roughly #3,863 per month) is taxed at a rate of 40%. |} You get just #60 for every #100 of income. Why not place the full #100 directly into the pension fund instead? That’s why many people,particularly those in the higher rate band of income tax,opt to place more than the minimal in their retirement fund. And this is completely possible. Contractors can contribute to #40,000 to their retirement scheme each year,including tax-free income and employer contributions. At this time,there’s a life allowance of #1,030,000 that can be contributed before incurring any tax. Using your budget {Together with the increased earnings of contracting,it is common for contractors to retire early. |} Alternatively,you might only wish to get some of the money out for a holiday,new car or home improvement. The good news isthat you don’t have to wait till the state retirement age to access the pension capital you have built up through your umbrella company retirement. As soon as you’re 55 or more,you can access up to 25 percent of your pension pot as a tax-free lump sum. Anything outside the 25 percent will be taxed as an accession to the rest of your income that tax season — 20% over #11,850,40 percent over #46,351 or #45% over #150,000,as things now stand. That’s why most people choose to take their retirement as regular income as soon as they have retired,to minimise the amount of tax paid. {Contractors who operate as a limited company can still benefit from the tax aid of a retirement scheme. |} However,as with the majority of things relating to limited companies,this requires a lot more effort on their part. Firstlythey must get the right balance between salary and dividend payments to boost the limit on their retirement contributions. Because employer contributions,such as pensions,count as a business expense,they are subject to tax relief. Thus,when you donate to your retirement strategy,as a director,the company could spend less in corporation tax. However, this has added complications because it needs to be fully compliant as an allowable expense. Any other employees,for example,ought to be given similar packages to prove to HMRC which it is a real business investment. In addition to all that,using a limited company pension scheme means setting up and paying to the retirement fund yourself. Along with all the other administrative work to get limited company owners,it is definitely worth seeking assistance and advice from a trustworthy accountant. Get the right help Whether you’re looking to compare umbrella companies or find the right accountant,you can make the right choice with -. Our online comparison tool allows you evaluate numerous businesses in a couple of minutes. It could not be much easier to take the hassle out of contracting. Contact us today for more information.