Pension doesn't allow 3rd party contributions

breaking_free

Due to recent redundancy I've taken on a contract job starting mid Jan. I'm using an umbrella company as the job is inside IR35.

I asked them about salary sacrificing into my existing Scottish Widows pension and they emailed me a form, which I forwarded to Scottish Widows so they could supply the correct bank details for contributions. Instead they replied stating that they won't accept 3rd party contributions. This is a major pain in the proverbials as I'm in the 40% tax bracket and wanted to sacrifice my pre-tax money.

At a bit of a loss for what to do. Presumably I'd best find another pension service provider. Anybody else on here a contractor who sacrificed into a pension? Which provider do you use thanks?

El_Torro

If all your contributions were at the higher rate tax bracket then with salary sacrifice you are gaining 40% Income Tax and 2% National Insurance. If you contribute outside of salary sacrifice then you can still benefit from tax relief on the 40% Income Tax, just not on the 2% National Insurance. Still, it would be nice to get the 2% benefit if you can. 

Your Umbrella company doesn't have to pay the contributions to Scottish Widows, you can always get a new pension elsewhere. Have you asked them which pension providers they work with?

breaking_free

Thanks El_Torro. Nope, haven't asked them about alternative pension providers yet but will do this tomorrow. With luck they'll already have a list of companies that allow 3rd party contributions.

sandsy

Isn't the umbrella company effectively your employer? Tell SW it's an employer contribution. A third party contribution is something different - it means a contribution which is neither a personal contribution nor an employer contribution.

jamesd

El_Torro said:

If all your contributions were at the higher rate tax bracket then with salary sacrifice you are gaining 40% Income Tax and 2% National Insurance. If you contribute outside of salary sacrifice then you can still benefit from tax relief on the 40% Income Tax, just not on the 2% National Insurance. 

While that can be true, normally it's possible to get 12% (now 10%) employee NI saving on much or most of the higher rate sacrifice by concentrating the whole year's sacrifice into as few months as possible.

This is benefitting from NI being calculated for each individual pay period instead of annually. A useful efficiency boost for those who understand how the system works.

A one month example, ignoring the issue of unequal month lengths and some fine details. Minimum wage is £10.42 an hour. Multiply by 40 hours then 52 weeks and divide by 12 to get the average monthly minimum wage of £1806.14. Basic rate band and 12% NI is up to £50,070, £4172.50 monthly. Subtracting £1806.14 gets you £2366.36 a month that you can shift from 2% NI to 12%. That's up to £236.63 of extra NI saving a month just by changing when you do the sacrificing instead of doing it evenly.

With NI cut from 12% to 10% from 6 January 2024 the improvement is reduced to £197.19 a month.

Grumpy_chap

breaking_free said:

Due to recent redundancy I've taken on a contract job starting mid Jan. I'm using an umbrella company as the job is inside IR35.

I asked them about salary sacrificing into my existing Scottish Widows pension and they emailed me a form, which I forwarded to Scottish Widows so they could supply the correct bank details for contributions. Instead they replied stating that they won't accept 3rd party contributions. This is a major pain in the proverbials as I'm in the 40% tax bracket and wanted to sacrifice my pre-tax money.

At a bit of a loss for what to do. Presumably I'd best find another pension service provider. Anybody else on here a contractor who sacrificed into a pension? Which provider do you use thanks?

I had a very similar situation.
In my case, the pension was happy to accept the "push" employer contributions but the UC was only willing to deal with one pension provider (the same one that they used for auto-enrolment).
I simply let the UC set up the auto-enrolment and then increased the SS contributions to that scheme.  As the fund accrued, it is then my decision to transfer out full or partial value to my main scheme.  (Note - some employer schemes do not allow partial transfer out and leave the fund open for ongoing contributions.)
Can you do something similar - just let the UC SS contributions go into the pension provider that the UC use as default?
Working through a UC, you definitely want to make these contributions as employer contributions so that you save the associated employer NI, rather than receiving pay and then making pension contributions.

dunstonh

I asked them about salary sacrificing into my existing Scottish Widows pension and they emailed me a form, which I forwarded to Scottish Widows so they could supply the correct bank details for contributions. Instead they replied stating that they won't accept 3rd party contributions. This is a major pain in the proverbials as I'm in the 40% tax bracket and wanted to sacrifice my pre-tax money.

There are three types of contribution.  
Employer/company   (your employer or if a director of a limited company - your company)
individual (you)
3rd party. (anyone else)

Many schemes won't allow 3rd party due to the extra anti-money laundering requirements.       A very very small number wont allow employer.

So, it is important to make sure you use the right terminology with the provider.  

breaking_free

sandsy said:

Isn't the umbrella company effectively your employer? Tell SW it's an employer contribution. A third party contribution is something different - it means a contribution which is neither a personal contribution nor an employer contribution.

.dunstonh said:

There are three types of contribution.  

Employer/company   (your employer or if a director of a limited company - your company)
individual (you)
3rd party. (anyone else)

Many schemes won't allow 3rd party due to the extra anti-money laundering requirements.       A very very small number wont allow employer.

So, it is important to make sure you use the right terminology with the provider.  

Yes I take the point about umbrella company contributions being employer contributions. It may be that the Scottish Widows support person who replied to me doesn't understand that the UC is effectively my employer. Here's an excerpt from the reply I got from Scottish Widows support: note the very poor English and typos.

As per your request the plan you have with us don’t except third party contribution. You can set up your own driect debit.  

I've written back to Scottish Widows to explain that the umbrella company is my employer and will see what they say. Meanwhile, does anybody use a pension provider other than Scottish Widows or can point me towards a website that states which ones do allow 3rd party contributions?
Thanking you all.

Grumpy_chap

breaking_free said:

Meanwhile, does anybody use a pension provider other than Scottish Widows or can point me towards a website that states which ones do allow 3rd party contributions?
Thanking you all.

As described above, you are not after a pension that accepts "third party contributions".  You want the pension to accept "employer contributions".

Stick to the legal fact that the UC is your employer.  Ignore any feelings of being an independent contractor or such like.  

As I asked above, the simplest is probably to see which pension provider the UC would deal with by default and then make the extra SS contributions to that scheme.  At least you know that way the UC contributions will easily reach the pension fund.

breaking_free

Apparently the umbrella company don't have a default provider. Instead they've kindly offered to put me in touch with their financial advisor. I won't be taking them up on this.

penners324

PensionBee allow employer contributions in this situation