{ Umbrella Company Pension Schemes — Everything You Want to Know |} Pension schemes help employees put money aside for retirement straight from their wage. The problem for self help professionals is they need to manage themselves,by simply setting up a pension scheme or saving cash from their earnings. Fortunately,umbrella companies class contractors as employees,providing them all of the benefits of employment. That includes a retirement scheme,which nowrequires participation from the umbrella company also. Let us take a closer look at the statutory retirement strategies available through umbrella companies. Auto-enrolment pensions {In 2012,the UK Government decided that employees were not saving enough for their retirement. |} People were relying on the State Pension,that had not received adequate funding to coincide with the continuing rise in life expectancy and an ageing population. {To combat this,they introduced automatic enrolment. |} The new system,rolled outfrom 2012 to 2018,requires employers to automatically enroll qualified employees on a workplace pension scheme. Employers are also 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 has been set to 1 percent for employees,that was matched by employers,rising in 2018: October 2012 to 5th April 2018: employers 1 percent,employees 1 percent 6th April 2018 to 5th April 2019: employers 2%,employees 3 percent 6th April 2019 admissions: employers 3%,employees 5 percent However for anyone that doesn’t want to donate 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 on the umbrella company’s pension scheme as long as you meet the following criteria: Your job 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% of your pre-tax salary will proceed into a retirement fund,together with the umbrella company contributing a further 2%. From 6th April 2019,5 percent of your pre-tax salary will enter the same pension fund,together with your umbrella company contributing a further 3%. The Advantages of an umbrella company pension Some contractors may worry that this will eat away at their wages. Do not. {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%. So,rather than receiving 60% of your earnings,you get 100 percent via a pension fund. Let us say you get over #46,351 per year,which puts you at the higher rate band of income tax. {Whatever you get beyond that #46,351 per year (approximately #3,863 per month) is taxed at a rate of 40%. |} You get only #60 for each #100 of income. Why don’t you place the full #100 directly into the pension fund instead? That’s the reason why many individuals,especially people in the higher rate band of income tax,opt to place more than the minimum in their retirement fund. And this is entirely possible. Contractors can contribute upto #40,000 to their retirement scheme per year,including tax-free income and employer contributions. Currently,there is a life allowance of 1,030,000 that can be donated before incurring any tax. With your budget {With the increased earnings of contracting,it is common for contractors to retire early. |} Alternatively,you might only want to get some of the cash out for a holiday,new car or home improvement. The good news is: you do not have to wait till the state retirement age to access the pension funds you have assembled 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 beyond the 25 percent will be taxed as an accession to the rest of your earnings that tax season — 20% over #11,850,40% 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. What about limited companies? {Contractors who operate as a limited company can still benefit from the tax aid of a retirement scheme. |} However,as with most things regarding limited companies,this requires much more effort on their part. Firstly,they have to get the ideal balance between salary and dividend payments to boost the limit in 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 pension scheme,as a manager,the company could spend less in corporation tax. However, this has added complications because it ought to be fully compliant as an allowable expense. Any other employees,for instance,ought to be given similar packages to prove to HMRC which it’s a real business investment. On top of all that,utilizing a limited company retirement scheme entails setting up and paying to the retirement fund yourself. Along with all the other administrative work for limited company owners,it is definitely worth seeking advice and assistance from a trustworthy accountant. Get the Ideal assistance Whether you’re searching to compare umbrella companies or find the right accountant,you can make the ideal decision with -. Our online comparison tool allows you assess numerous companies in a matter of minutes. It couldn’t be much easier to take the hassle from contracting. Contact us today to learn more.