{ Umbrella Company Pension Schemes — What You Need to Know |} Pension schemes help employees put money aside for retirement straight from their own commission. The problem for self-employed professionals is they need to manage themselves,by simply establishing a retirement strategy or saving money from their income. Fortunately,umbrella companies class contractors as employees,giving them all the benefits of employment. Including a pension scheme,which requires contribution from the umbrella company also. Let’s take a closer look at the statutory retirement strategies available through umbrella businesses. {In 2012,the UK Government decided that workers were not saving enough for their retirement. |} Individuals were relying too muchon the State Pension,that had not received adequate 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 outfrom 2012 to 2018,requires companies to automatically enroll qualified employees onto a workplace retirement strategy. Employers will also be responsible for deducting donations in their pre-tax income and making a minimum statutory contribution to the employee’s savings. In October 2012,this minimum contribution has been set to 1 percent 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 percent But for anybody that does not need to contribute to a pension once 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’re automatically registered onto the umbrella company’s pension scheme as long as you fulfill the following criteria: Your work is primarily UK-based You earn greater than #10,000 annually You’re 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 go into the same pension fund,with your umbrella company contributing a further 3%. The benefits of an umbrella company pension Some contractors may worry that this may 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 into your pension fund is tax-free instead of being taxed at 20% or even 40%. So,rather than receiving 60 percent of your income,you get 100% via a pension fund. Let’s say you earn more than46,351 annually,which puts you in the higher rate band of income tax. {Whatever you earn beyond that #46,351 annually (approximately #3,863 a month) is taxed at a rate of 40%. |} You receive just #60 for each #100 of revenue. Why don’t you put the full #100 straight into the retirement fund rather? That is the reason why lots of individuals,particularly people in the higher rate band of income tax,opt to put more than the minimum into their pension fund. And this is completely possible. Contractors can contribute to #40,000 to their pension scheme per year,comprising tax-free income and company contributions. Currently,there’s a lifetime allowance of #1,030,000 that can be donated before incurring any tax. Using your funds {Together with the increased earnings of contracting,it is common for contractors to retire early. |} Alternatively,you may simply wish to get some of the money out for a holiday,new car or home improvement. The good news is: you do not 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 percent of your pension pot as a tax-free lump sum. Anything outside the 25 percent will be taxed as an accession to the remainder of your income that tax year — 20% over #11,850,40% over #46,351 or #45% over #150,000,as things now stand. That is why most people choose to take their pension as regular income once they have retired,to minimise the quantity of tax paid. What about limited companies? {Contractors who function as a limited company can still benefit from the tax aid of a pension scheme. |} However,as with most things regarding limited companies,this requires much more effort on their own part. Primarily,they have to get 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’re subject to tax relief. Thus,when you contribute to your retirement strategy,as a manager,the company could save money in corporation tax. But this has added complications since it ought to be completely compliant as an allowable cost. Any other employees,for example,should be given comparable packages to prove to HMRC that it’s a genuine business expense. In addition to all that,using a limited company pension scheme means establishing and paying into the pension fund yourself. Along with all the other administrative work to get limited company owners,it is definitely worth seeking assistance and advice from a trusted accountant. Get the Ideal assistance Whether you’re looking to compare umbrella companies or find the appropriate accountant,you are able to make the right choice with limited company vs paye. Our online comparison tool allows you evaluate numerous businesses in a matter of minutes. It could not be easier to take the hassle out of contracting. Contact us now for more information.