{ Umbrella Company Pension Schemes — Everything You Need to Know |} Pension schemes help employees put money aside for retirement straight from their own commission. The issue for self help professionals is thatthey will need to manage thisthemselves,either by establishing a retirement strategy or saving cash from their income. Fortunately,umbrella firms class contractors as employees,providing them all the benefits of employment. Including a retirement scheme,which nowrequires participation from the umbrella company also. 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. |} Individuals were relying too muchon the State Pension,which had not received adequate funding to coincide with the continuing rise in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled from 2012 to 2018,requires employers to automatically enroll qualified 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 contribution has been set to 1 percentage for employees,which was matched by employers,increasing in 2018: October 2012 to 5th April 2018: employers 1 percent,employees 1% 6th April 2018 to 5th April 2019: employers 2 percent,employees 3% 6th April 2019 onwards: employers 3%,employees 5% However for anybody that does not want to contribute 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’re automatically enrolled on the umbrella company’s pension scheme provided that you meet the following criteria: Your job is primarily UK-based You earn more than #10,000 per year You’re between 22 and the state pension age. Until 5th April 2019,3% of your pre-tax salary will go into a retirement fund,with the umbrella company contributing a further 2%. From 6th April 2019,5% 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 wages. Don’t. {Pension contributions are made prior to your wages are taxed. |} That means anything which goes from your wage in your pension fund is tax-free rather than being taxed at 20 percent or even 40%. So,rather than receiving 60% of your income,you get 100 percent via a pension fund. Let us say you earn more than46,351 annually,which sets you at the higher rate band of income tax. {Anything you earn beyond that #46,351 annually (approximately #3,863 per month) is taxed at a rate of 40%. |} You get just #60 for each #100 of revenue. Why not place the full #100 directly into the pension fund instead? That is why many individuals,especially those in the higher rate band of income tax,choose to place more than the minimum in 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 company contributions. Currently,there is a life allowance of #1,030,000 which can be contributed before incurring any tax. Using your funds {Together with the increased earnings of contracting,it’s common for contractors to retire early. |} Alternatively,you may simply wish to get some of the cash out for a vacation,new car or home improvement. The good news is: you don’t have to wait until the state retirement age to get the pension capital you’ve assembled through your umbrella company retirement. Once you’re 55 or more,you are able to get 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 — either20% over #11,850,40% over #46,351 or #45% over #150,000,as things currently stand. That is why most people choose to take their retirement as regular income as soon as they’ve 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 retirement scheme. |} However,as with the majority of things relating to limited companies,this needs a lot more effort on their part. Firstly,they have to get the right balance between salary and dividend payments to boost the limit in their retirement contributions. Because employer contributions,like pensions,count as a business expense,they’re subject to tax relief. Thus,when you contribute to your retirement strategy,as a manager,the company can save money in business tax. However, this has additional complications because it ought to be completely compliant as an allowable expense. Any other employees,for example,should be given comparable packages to prove to HMRC which it’s a real business investment. In addition to all that,utilizing a limited company retirement scheme entails establishing and paying into the retirement fund yourself. Along with the rest of the administrative work for limited company owners,it’s 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 right accountant,you are able to make the right decision with -. Our online comparison tool lets you assess numerous companies in a matter of minutes. It couldn’t be easier to take the hassle out of contracting. Contact us now for more information.