Do Umbrella Companies Have a Pension Scheme?Do Umbrella Companies Have a Pension Scheme?
Umbrella Company Pension Schemes – Everything You Need to Know
Pension schemes help employees put money aside for retirement directly from their own commission. The issue for self help professionals is thatthey will need to handle themselves,either by setting up a retirement strategy or saving money from their income. Fortunately,umbrella firms course contractors as employees,providing them all the benefits of employment. Including a pension scheme,which requires participation from the umbrella company also. Let’s take a closer look in the statutory pension schemes available through umbrella companies.
In 2012,the UK Government determined that employees were not saving enough for their retirement. |} Individuals were relying too muchon the State Pension,that hadn’t received adequate funding to match the continuing rise 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 enrol eligible employees on a workplace retirement strategy. Employers will also be responsible for deducting donations from their pre-tax income and making a minimum statutory contribution to the employee’s savings. In October 2012,this minimum donation was set to 1 percent 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 percent 6th April 2019 onwards: employers 3%,employees 5% However for anybody that doesn’t need to contribute to a pension as soon as you’re enrolled you can still opt out. Working through an umbrella company,contractors are recognized as an employee.
That means,yes,you are automatically enrolled on the umbrella company’s pension scheme provided that you fulfill the following criteria: Your job is primarily UK-based You earn more than #10,000 annually You’re between 22 and the state pension age. Until 5th April 2019,3% of your pre-tax salary will go into a pension fund,with the umbrella company contributing a further 2%. By 6th April 2019,5% of your pre-tax salary will probably go into precisely the same pension fund,with your umbrella company contributing a further 3%. The benefits of an umbrella company retirement Some contractors can worry that this may eat away in their salary. Don’t. Pension contributions are made prior to 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,rather than getting 60 percent of your income,you receive 100% via a pension fund. Let’s say you get over #46,351 per year,which sets you in the higher rate band of income tax. Whatever you get beyond that #46,351 per year (roughly #3,863 per month) is taxed at a rate of 40%. You receive just #60 for each #100 of income. Why not put the full #100 straight into the pension fund instead? That is why lots of people,particularly people in the higher rate band of income tax,choose to put more than the minimum in their pension fund. And this is completely possible. Contractors can contribute upto #40,000 for their pension scheme per 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. With your funds Together with the increased earnings of contracting,it’s typical for contractors to retire early.
Alternatively,you might simply want to find some of the money out for a holiday,new car or home improvement. The good news is: you don’t have to wait until the state pension age to get the pension capital you’ve built up through your umbrella company pension. As soon as you’re 55 or over,you are able to get up to 25 percent of your pension pot as a tax-free lump sum. Anything beyond the 25 percent will be taxed as an addition to the rest of your income that tax year — either20% over #11,850,40 percent over #46,351 or #45% over #150,000,as things currently stand. That is why many people choose to take their pension as regular income as soon as they’ve retired,to minimise the quantity of tax paid.
Contractors who function as a limited company can still benefit from the tax relief of a pension scheme. However,as with the majority of things regarding limited companies,this requires much more effort on their part. Firstly,they must find the ideal balance between salary and dividend payments to boost the limit in their pension contributions. Because employer contributions,like pensions,count as a business expense,they are subject to tax relief. So,when you contribute to your retirement strategy,as a manager,the company could save money in corporation tax. But this has added complications because it ought to be fully compliant as an allowable expense.
Any other employees,by way of instance,should be given similar packages to prove to HMRC which it’s a genuine business investment. On top of all that,utilizing a limited company pension scheme means setting up and paying into the pension fund yourself. Along with all the other administrative work for limited company owners,it’s definitely worth seeking advice and assistance from a trusted accountant. Get the right assistance Whether you’re looking to compare umbrella firms or find the right accountant,you are able to make the ideal choice with -. Our online comparison tool allows you evaluate numerous companies in a matter of minutes. It couldn’t be much easier to take the hassle out of contracting. Contact us now to learn more.