Contractors' Questions: Can an umbrella pay into my private pension?
Contractor’s Question: As a newcomer to contracting, PAYE appeals to me as I’ve only just finished being an employee of a large organisation. To stick with what I know, I’d like to use an umbrella company. However as well as tax and NI, I would like them also to pay contributions to a private pension that I intend to set up. Will all umbrellas do that for me?
Expert’s Answer: The Pensions Acts of 2008 and 2011 fundamentally reformed pension provision in the workplace because, for the first time in UK law, they required every single employer, including contractors employed through umbrella companies, to automatically enrol their workers into a qualifying workplace pension scheme. This new requirement caught brollies that were not already doing this, and mandated them to input into a pension.
The provisions were phased in from October 1st 2012 so, by now in 2017, every umbrella company should be in a situation whereby they are offering a group pension scheme for its employees.
You mention that you would like the umbrella company to pay contributions into a private pension that you are looking to set up. In theory, this is fine, but these payments will have to be made from your net pay; umbrellas are unable to make payments via salary-sacrifice unless the contributions are made direct to their chosen scheme. However, if you did opt for this route, you can still report the contributions via self-assessment at the end of the financial year in order to reclaim the tax benefit.
Choosing this option, rather than choosing the umbrella’s group pension, means that you will miss out on the National Insurance Contribution savings that you would get if the figures were taken from your gross figure.
There are opportunities with many pensions providers to take that pension pot with you. So it may be possible once you complete your assignment with the umbrella company to transfer that pension pot into your chosen scheme. However it would be worth checking that this is possible with the scheme providers before you start making those payments.
The expert was Lucy Smith, managing director of ContractorUmbrella.