Inside Ir35 and pensions

[Amanensia]

Employers do not have to make any contributions if you opt out.

Some may possibly do so but it's not legally required.

In an umbrella situation, where basically all the contributions are being funded by your daily rate and not by the largesse of your employer, I'm sure opting out would just mean no contributions are made.

[CryingSheep]

Nope.
If you're not enrolled they don't have to contribute.



Workplace pensions - what your employer can and can't do - GOV.UK

And what is usually the minimum to be enrolled? 1% or can you do like 0.1%

I'm just curious, because I honestly think it's just dumb not to enrol to at least the maximum the employer will match!

[Amanensia]

And what is usually the minimum to be enrolled? 1% or can you do like 0.1%

I'm just curious, because I honestly think it's just dumb not to enrol to at least the maximum the employer will match!

The minimum contribution rates are 3% employer, 5% employee.

Some employers will pay more, possibly dependent on you also paying more, but anything over the minimum rates are a matter of negotiation between you and your employer.

[Lance]

And what is usually the minimum to be enrolled? 1% or can you do like 0.1%

I'm just curious, because I honestly think it's just dumb not to enrol to at least the maximum the employer will match!

read the link I've posted twice......

[PCTNN]

if you opt out you lose their 3% contribution right? Or did that get added back to salary so wasn't actually their contribution?

If you opt out within the grace period (30 days I think in my case) the contribution is added back to your salary.

[Amanensia]

If you opt out within the grace period (30 days I think in my case) the contribution is added back to your salary.

Although interestingly in theory only the employee's part of the contribution is refunded. I wonder what happens to that first employer's contribution. In a "normal" company it'd revert to the employer, so I guess in theory the umbrella could keep it.

[PCTNN]

Yes, but not all pensions are that portable. I remember one scheme I was on as a permie charged all its fees upfront so it wasn't worth moving it. Don't know how common that is but you could end up with pension pots all over the place especially if you are forced to go through the brolly of the agency's choice ( not sure in reality if that's happening though).

True that, pensions pots might not be portable. In my case I didn't read the terms and conditions as I was pretty set on opting out anyways.

Since it sounds like a lot of contractors will be going via umbrella, it might be good to have a sticky with list of umbrella companies and how they do pension contributions (how much - if anything more than the minimum legally required - and how easy it is to move the pot if you move umbrella)

[mogga71]

that makes sense bu is not the whole story. You can make personal contributions to a pension after taking it as salary.

EG. If I pay £100 into my pension from cash, the amount credietd to my pension fund is £120 (or £140 if I'm a higher rate tax payer).
It gets complicated when you are say £20k into the higher rate bracket and you pay over £20k into the pension as not all of it will get an extra 40%. There's a box on your SATR to complete as well so it all balances out.

I know you can make payments after salary as I have done it many times. The big difference here is that for that £100 cash somebody would have had to pay employer NI and you would have paid employee NI. When directing the 40k from umbrella you will not be paying any of these....if umbrella allows it.

The way I see it is that it’s basically 40k deduction free .. everything after that you are going to have to pay some form of deductions.

Of course the major bummer is that the 40k is going into a pension and so not available yet .. for most.

[CryingSheep]

The other aspect of this is, when you make pension contributions by salary sacrifice, the employer also saves on NIC. I would guess that umbrella PAYE will work on a fix daily rate with the client so any savings on NIC will be extra profit for the umbrella?

Lets say you make 100k, you put 40% into pension the employer/umbrella saves 13.5% NIC contributions on 40k, that's still a lot of money if the umbrella can keep it! And if this is true, umbrellas should go crazy with the possibility of uncapped salary sacrifice contribution...

[Amanensia]

The other aspect of this is, when you make pension contributions by salary sacrifice, the employer also saves on NIC. I would guess that umbrella PAYE will work on a fix daily rate with the client so any savings on NIC will be extra profit for the umbrella?

Lets say you make 100k, you put 40% into pension the employer/umbrella saves 13.5% NIC contributions on 40k, that's still a lot of money if the umbrella can keep it! And if this is true, umbrellas should go crazy with the possibility of uncapped salary sacrifice contribution...

I would expect a reputable Umbrella to work on the basis that they take their fee, and all other funds are extinguished by tax and NI deductions, other agreed deductions such as pensions, apprenticeship levy etc, and the remainder goes to the worker. So if the method of calculating a pension deduction results in a reduction in NI, that feeds through as extra salary. Otherwise any Umbrella that chose to pocket such a windfall would soon find itself at a pretty large competitive disadvantage.