Pensions with an umbrella company – a quick guide for contractors

When you join an umbrella company, the umbrella becomes your employer, and you become an employee. Therefore, it is a legal requirement for umbrella companies to auto-enrol their employees into a workplace pension scheme. Keep reading, and we’ll explain how pensions with an umbrella company work and what your best options are.

An overview of workplace pensions

A workplace pension allows employees the opportunity to save for their retirement – often in a tax-efficient manner. Pensions are relevant to users of umbrella companies because by registering with an umbrella, they become an employee, and the umbrella becomes the employer.

Employers are legally required to enrol their employees into a workplace pension. Therefore, as the employer, umbrella companies are legally required to auto-enrol their employees into a workplace pension scheme. Some exceptions do apply, but generally speaking, employees between the ages of 22 and the state pension age who earn upwards of £10,000 per annum will be auto-enrolled into a pension scheme – as per the government’s rules.

Auto-enrolment

When you register with an umbrella company, you’ll be sent information regarding pensions and auto-enrolment. Each umbrella company will have a preferred pension provider and employers have up to three months to auto-enrol their employees into a workplace pension. Most umbrella companies will take advantage of this timeframe and will ensure employees are auto-enrolled after 12 weeks.

It is common for umbrella company employees to work on short-term assignments and only require an umbrella company’s services for a couple of months. Therefore, delaying auto-enrolment makes life easier for those who won’t remain on the books of an umbrella for over 12 weeks.

Contributing towards a pension with an umbrella company

Contributing towards a workplace pension is easy for umbrella company employees and minimal administration is required. Once the registration process is completed, you are free to work on your assignments and submit timesheets. You will be notified by the umbrella company when you have been enrolled into their preferred pension scheme, and you will not have to do anything unless you wish to opt out.

Your umbrella payslip will show pension contributions, and umbrella company employees are responsible for making the employees contribution (5%) and the employer’s contributions (3%).

Opting out of pension contributions

Umbrella employees do not have to continue contributing to the umbrella company’s preferred pension provider. If you would like to opt out – this is no problem at all. However, please be aware that you are required to contact the pension provider directly to do this – not the umbrella company you’re using. The umbrella company can help you get in contact with the pension provider, but they cannot opt you out of pension contributions.

It is not possible to opt out of a workplace pension until you have made your first contribution. While this may be frustrating, it’s not the employer’s fault (or umbrella company) because they follow government regulations. However, should you wish to opt-out of your workplace pension at the earliest opportunity, you can claim back your first contribution.

In most cases, umbrella employees have 30 days to opt-out of a workplace pension and get a refund for their first contribution. Employees can opt-out whenever they want, but they’ll not be eligible for a refund if they request to leave the pension provider after 30 days. However, this will stop future contributions from being made.

Salary sacrifice (pensions)

Not all, but some umbrella companies will allow their employees to contribute towards their personal pensions with salary sacrifice. Salary sacrifice enables umbrella company employees to contribute more of their earnings towards their pension – in a tax-efficient manner.

Taking advantage of salary sacrifice for pension contributions won’t be for everybody. However, it could be an excellent and cost-effective way to save for retirement if you’re keen to boost your pension quickly, earn a high salary, have additional sources of income, or are happy to live on a reduced wage.

Salary sacrifice is also possible for those who are yet to set up a personal pension. For example, Churchill Knight Umbrella offers salary sacrifice, and we can help our employees set up a personal pension with the help of our partnered wealth management specialists.

Churchill Knight Umbrella

Churchill Knight Umbrella has processed the payroll of thousands of contractors, and we look forward to working with many more. Our priority has always been to provide our employees with a compliant, hassle-free service. We’re proud to be accredited by the Freelancer and Contractor Services Association (FCSA) because we believe there is no better way to showcase our commitment to compliance within our sector.

Our preferred workplace pension provider is Smart Pension. We believe it provides our employees with the best all-round experience. When you register with us, we’ll give you all the information you need about your workplace pension with Smart Pension, as well as information on how to opt out should this be your preference.

To find out more about Churchill Knight Umbrella and to request a free, tailored take-home pay projection, please complete the short form here or call 01707 871622.