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        Updated: April 08, 2024

        Umbrella Company Pension Schemes

        What are the pros and cons of using an umbrella company to shield your pension contributions? Everything you need to know is right here in this handy guide.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        For many contractors in the UK, saving for retirement can often seem quite difficult as this line of work means your income can vary depending on the particular job you’re doing at any given time.

        Operating under a contractor umbrella company provides a number of advantages for saving into a pension scheme. This article looks more closely at what they are and how they can benefit you.

        Once you’ve read through the details below, if you’re contracted under an umbrella company and would like further information on the type of pensions available to you give us a call on 0808 189 0463 or make an enquiry to get started.

        What are the benefits of using an umbrella company to make pension contributions?

        In the UK, an umbrella company is a form of a limited company often used by contractors and recruitment agencies as a way of providing a simple pay-as-you-earn (PAYE) structure for someone who operates in this field.

        The umbrella company, in effect, is the employer and the contractor is the employee. A contractor can set up their own umbrella company or use one provided by an agency or a client who is offering them a work assignment.

        The main advantages of using an umbrella company with regards to pension contributions would be:

        As a UK employer, your umbrella company is legally entitled to provide you with access to a workplace pension scheme.

        In fact, under UK government guidelines you should be automatically enrolled if the following conditions apply:

        • You are classed as an employee
        • You are between the age of 22 and state pension age
        • Your earnings are in excess of £10,000 for the tax year
        • You are classed as ordinarily resident in the UK for work purposes

        Once you’re auto-enrolled, the umbrella company will collect a percentage of your income and place it into a workplace pension scheme on your behalf.

        As an employer, an umbrella company is also obliged to contribute towards your pension. The minimum contribution for the current tax year (2019/20) is 8%. This is split between employer (3%) and employee (5%), based on the employees earnings.

        One of the main reasons cited by people who aren’t currently saving into a pension scheme is that they simply haven’t gotten around to it or can’t find the time. One of the key benefits of a workplace pension is that, as an employee of an umbrella company, everything is done for you.

        As your contributions are directly related to your earnings, you have the peace of mind of knowing that during periods where your contractor income is low your pension savings will adjust accordingly rather than remain at a fixed amount.

        Naturally, when your work volumes are higher your pension contributions will automatically increase.

        In addition to the umbrella company, as your employer, making contributions to your pension, the UK government also provides an additional amount in the form of tax relief, based on your marginal rate of income tax.

        Workplace pensions are classed as a defined contribution scheme (personal pension), therefore you’re entitled to receive tax relief up to a maximum of £40,000 per annum or 100% of your total earnings – whichever amount is lower.

        If you’re a contractor and would like to find out more about how workplace pension schemes can help you save for retirement, make an enquiry and we can arrange for one of the advisors we work with to get in touch.

        Can I use an umbrella company to provide a salary sacrifice pension?

        Yes, it’s certainly possible. Many contractors who use an umbrella company operate their pension plan on a salary sacrifice basis as this method is generally more tax-efficient and reduces the overall tax liabilities (particularly for National Insurance contributions) of both the employee and employer.

        If your umbrella company is using a workplace scheme, the stipulations regarding minimum earnings (as outlined above) would still need to be adhered to if you choose to contribute to your pension using salary sacrifice.

        The advisors we work with are vastly experienced across all different forms of pension planning and provision. If you get in touch we can arrange for an expert in this area to contact you and discuss further.

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        If I have a contract which falls within IR35 rules can I still use an umbrella company for my pension?

        If you are currently engaged in a contractor role with a client where you’re ‘deemed an employee’ under IR35 rules you can still use an umbrella company for any pension contributions as they are still considered a legitimate tax break in such circumstances.

        If you’re still unsure it may be best to speak with an expert in these matters.

        Speak to a pensions expert

        As you can see, there are a number of advantages for using an umbrella company for your pension contributions. If you want to speak with someone who can provide more knowledge in this area before making any decisions, this is where we can help.

        All the experts we work with are independent financial advisors with wide pensions experience and access to every pension provider in the UK.
        The advisors we work with can help you find the best type of pension solutions that suit your circumstances.

        All advice is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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