Umbrella Company Pension Schemes — What You Want to Know Pension schemes help employees put money aside for retirement directly from their own commission. The problem for self-employed professionals is thatthey need to handle themselves,either by establishing a pension scheme or saving money from their income. Fortunately,umbrella firms course contractors as employees,giving them all the advantages of employment. Including a retirement scheme,which requires contribution from the umbrella company too. Let us take a better look at the statutory retirement strategies available through umbrella companies.
In 2012,the UK Government decided that employees were not saving enough for their retirement. People were relying too muchon the State Pension,which hadn’t 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 from 2012 to 2018,requires companies to automatically enrol eligible employees onto a workplace pension scheme. Employers are also 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 contribution has been set to 1 percentage for employees,which was matched by companies,increasing in 2018: October 2012 to 5th April 2018: companies 1%,employees 1% 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 need to contribute to a retirement 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 onto the umbrella company’s pension scheme provided that you fulfill the following criteria: Your work is primarily UK-based You earn more than #10,000 per year You are between 22 and the state pension age. Until 5th April 2019,3 percent of your pre-tax wages will proceed into a retirement fund,together with the umbrella company leading to a further 2%. By 6th April 2019,5 percent of your pre-tax wages will probably go into the same pension fund,together 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. Do not. Pension contributions are made prior to your wages are taxed. That means anything that goes from your wage into your pension fund is tax-free instead of being taxed at 20% or even 40 percent. So,instead of getting 60 percent of your income,you get 100% using 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 (approximately #3,863 a month) is taxed at a rate of 40%. You get just #60 for each #100 of income. Why don’t you put the full #100 straight into the retirement fund rather? That’s the reason why lots of individuals,especially people in the higher rate band of income tax,opt to put more than the minimum into their retirement fund. And this is entirely possible. Contractors can contribute to #40,000 to their retirement scheme each year,including tax-free income and employer contributions. Currently,there’s a life allowance of 1,030,000 which can be contributed before incurring any tax. Using your funds With the increased earnings of contracting,it is typical for contractors to retire early.
Alternatively,you may simply wish to get some of the money out for a vacation,new car or home improvement. The good news isthat you do not need to wait till the state retirement age to get the pension capital you have built up through your umbrella company retirement. As soon as you’re 55 or over,you are able to get 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 remainder of your income that tax season — either20% over #11,850,40 percent over #46,351 or 45% over #150,000,as things currently stand. That’s why many people decide to take their retirement as regular income as soon as they’ve retired,to minimise the quantity of tax free. Contractors who function as a limited company can still benefit from the tax relief of a retirement scheme. However,as with most things relating to limited companies,this requires much more effort on their part. Primarily,they must get the ideal balance between wages and dividend payments to boost the limit on their retirement contributions. Because employer contributions,like pensions,count as a business cost,they are subject to tax relief.
Thus,when you contribute to your pension scheme,as a manager,the company can spend less in business tax. But this has additional complications because it needs to be completely compliant as an allowable cost. Any other employees,by way of instance,ought to be given comparable packages to prove to HMRC that it’s a genuine business expense. On top of all that,using a limited company pension scheme means establishing and paying into the retirement fund yourself. Along with the rest of the 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 firms or find the appropriate accountant,you are able to make the ideal choice with Limited of umbrella company. Our online comparison tool lets you evaluate numerous companies in a couple of minutes. It could not be easier to take the hassle from contracting. Contact us now for more information.