Salary Sacrifice Pensions for Umbrella Employees
When you join Liquid Friday as an umbrella employee, you are auto-enrolled into our approved workplace pension scheme with Now:Pensions (as is required by law). Your pension contributions are taken before tax is calculated, making it a tax-efficient way to save for retirement. Increasingly though, umbrella contractors are taking advantage of salary sacrifice options which let them bolster their pension while taking advantage of the tax benefit. More in your retirement pot and less in the taxman’s pocket can only be a good thing, right?
What is Salary Sacrifice?
Salary sacrifice basically does what it says on the tin; you agree to give up part of your salary in return for a non-cash benefit. This is usually (but not always) a pension contribution. At Liquid Friday, we work with a range of personal pension providers to offer this benefit. This gives our contractors the opportunity to save more for their retirement while maximising tax efficiencies.
What’s the advantage of a salary sacrifice pension?
With a salary sacrifice pension, the employer (in this case Liquid Friday) puts your chosen amount directly into your pension before it becomes taxable pay. On the other hand, if you were to make a pension contribution from your own account after you’ve been paid, your wages would already have been subject to PAYE tax and NICs. This makes it a hugely attractive option for umbrella employees, especially for high-earners or those with spare disposable income.
How much can I pay in?
You can choose to pay in any fixed amount so long as it doesn’t reduce your gross pay to below National Minimum Wage for the hours worked.
From 6th April 2023, the annual allowance for tax relief on pension savings in a registered pension scheme is set to increase from £40,000 to £60,000.
This means you can now save more into your pension pot in a tax year, before you have to pay tax.
Does Liquid Friday charge for this?
There’s absolutely no charge for processing salary sacrifice payments into a personal pension scheme. It is simply one of a range of flexible benefits that we offer our umbrella employees.
How and when are payments made to my pension provider?
We make payments to your pension provider by bank transfer. Payments are made weekly or monthly depending on the individual provider’s requirements.
Is there a downside?
While the advantages outweigh the disadvantages, a salary sacrifice pension isn’t for everyone. Sacrificing part of your salary obviously means you earn less, and this may affect your State Pension or contribution-based benefits like ESA or JSA. Similarly, a lower salary may have an impact on how much you can borrow for a mortgage. If you are in this position, Liquid Friday’s in-house contractor mortgage advisor will be able to talk you through your options.
Do all umbrella companies offer salary sacrifice pensions?
No, not all umbrella companies offer salary sacrifice arrangements and where they do, some charge additional fees for processing these payments. Moral of the story? Choose your umbrella company carefully!
If you are interested in a salary sacrifice pension with Liquid Friday, get in touch with the team and we’ll get things started.