Umbrella Companies - Should they contribute to my pension?

stevebrockie

Hi All, I am a newbie to the forum.
For the last two years I have worked as a PAYE contractor - my end client uses an Umbrella Company and I am an employee of the Umbrella Company.  When it came to pension auto-enrollment, they explained that both the employer and employee contributions would come out of my qualifying earnings from the end client.  As a result, I opted out of that and I manage my own retirement planning separately.
However, if I am deemed an employee of the Umbrella Company, then they are my employer and should surely, legaly, have to pay an employer's contribution to an auto-enrollment pension scheme with me paying in the employee's contribution myself which would be tax deductable.
Can anyone advise on what seems to be a grey area?

Prism

You opted out of it though, which means you lose the employers contribution.

El_Torro

It's been a few years since I used an Umbrella company. As I understand it though any pension contributions would have to come out of your day rate / the money you get paid from the client. Essentially the Umbrella company is paid by the client and you get your cut. Back in my day the Umbrella company was taking about £20 a week for their service. If they had to pay employer's contributions on top of that they would go bust pretty quickly. 

So yes, you can certainly have an employer contribution, you just have to accept a lower cut from the fees the client pays to get this. Not to say that you shouldn't be in a pension scheme, you still pay less tax by doing this.

DullGreyGuy

stevebrockie said:

Hi All, I am a newbie to the forum.
For the last two years I have worked as a PAYE contractor - my end client uses an Umbrella Company and I am an employee of the Umbrella Company.  When it came to pension auto-enrollment, they explained that both the employer and employee contributions would come out of my qualifying earnings from the end client.  As a result, I opted out of that and I manage my own retirement planning separately.
However, if I am deemed an employee of the Umbrella Company, then they are my employer and should surely, legaly, have to pay an employer's contribution to an auto-enrollment pension scheme with me paying in the employee's contribution myself which would be tax deductable.
Can anyone advise on what seems to be a grey area?

And where do you think that money would come from? The £3 a week fee you pay them?

You will be an employee of the umbrella and will be paid NMW

The problem is you are still thinking the £X a day is "yours" but its not, its the Umbrellas. They pay you your NMW, pay employer expenses from it and then pay you the remainder minus their £3/week fee.

Not a grey area, they are paying it not you but it does impact your take home pay. 

stevebrockie

Thanks all for the feedback - I did opt out and would rather sort my own retirement planning, I was just curious.  It makes sense what @DullGreyGuy said, although I am intrigued that there are Umbrellas out there only charging £3 per week, I need to find that Umbrella!! 

whizzywoo

stevebrockie said:

Thanks all for the feedback - I did opt out and would rather sort my own retirement planning, I was just curious.  It makes sense what @DullGreyGuy said, although I am intrigued that there are Umbrellas out there only charging £3 per week, I need to find that Umbrella!! 

Good luck with a cheap Umbrella company!  My son has had several different ones depending on who his contract has been with.  As I deal with his tax return I can see a big difference in the different ones.

Numerous mistakes including not issuing leaving P45s and incorrect deductions and operating incorrect Code Numbers.  Some were good but others cost me a lot of time and effort which would have cost my son a fortune if he had an Accountant he pays for.

By the way he is generous with his gifts to me so I didn't mind but glad he's now gone "Cards In" as it were and is a permanent employee.

DullGreyGuy

Yeah, probably more like £20 - £25 in reality just exaggerated for dramatic effect. Either way you would need to be on a very low day rate for it to be possible for them to fund it out of their margin and then it wouldnt be realistic

Contractor101

I have been with a few umbrella companies and quickly realised that pensions aren't paid by your payroll company. There's 2 parts employer and employee which cannot be removed unless you choose not to have any pension deducted. In my experience i have had a choice, also been able to get pension refunded that has been deducted as long as its within cut off period. Its not good or bad to opt in or opt out, it really depends on your personal circumstances and what is best for you at that moment in time. 

Grumpy_chap

UC pension is met from the day rate.
The OP opted out.
The most tax efficient form of pension contribution would be to use SS via the UC.