What Contractors Need to Know About Workplace Pensions

Pension

Contributing to a pension isn’t the most exciting of subjects, and you might have better things to think about than what your lifestyle will be several decades from now. Lots of people feel the same way, which is why so many fail to make adequate provision for their retirement. Fortunately, as a UK employee you should have easy access to a workplace pension without having to take any action yourself – all you really need to do is go along with it.

Contractor's Guide to Workplace Pensions: Click here to download>>

Even so, it is important that you understand what’s happening and where your money is going to, so if you can keep from nodding off for a bit longer, we’ll try to be as entertaining and concise as we can.

Why save for retirement?

The obvious reason for saving for retirement is that the state pension is no longer enough for most people and you’re going to need to make additional provision. Also obviously, the sooner you start saving, the more likely you are to be able to fund the lifestyle you want when you come to retire.

Another reason to save is that pension savings are extremely tax efficient. You don’t pay tax on your contributions, the pension itself can grow without tax implications and at retirement you can take up to 25% of your pension pot as a tax-free lump sum, making it one of the most efficient ways to save.

The advantage of being employed

As we’ve touched on already, arranging a pension is one of those tasks that people habitually put off. This is understandable; it won’t make any difference to your life for many years, and whether you do it this month, next month or the month after that won’t actually affect the outcome very much. The problem is that habitually putting it off can lead you to wait much longer than you intended, and you might end up saving much less than you need.

That’s where being an employee can be a huge advantage, because all UK employers now have to provide and contribute to a workplace pension scheme. All qualifying employees must be automatically enrolled, so you don’t actually have to do anything at all yourself.

Typically, an umbrella employer will enrol you on their pension scheme once you’ve been employed for three months, which means you might end up saving less if you often move from one umbrella company to another.

Why your umbrella company signed you up without asking you first

We speak to quite a few contractors who are quite cross about this, and we understand where they’re coming from. You’d naturally expect an employer to require your express consent to sign you up for a pension, and you may be annoyed that they went ahead without this.

However, administering and contributing to your workplace pension represents a cost to your employer. The law is written to make sure your employer doesn’t put pressure on you to opt out and save them money.

Accordingly, the law requires your umbrella company, as your employer, to enrol you onto their workplace pension scheme, whether you want them to or not. Once you’re enrolled you may then have the chance to opt out if you choose.

Employer contributions

One of the advantages of a workplace pension is that your employer is required to contribute too, which means you save more money at a lower cost to yourself. From April 2019 the minimum contributions will increase for both the employee and employer:

  Employee contribution (paid by you) Employer contribution (paid by your umbrella company)
April 2018 - April 2019 3% of qualifying earnings 2% of qualifying earnings
April 2019 onwards 4% of qualifying earnings 3% of qualifying earnings

Your right to opt out

While your umbrella company is required to enrol you into their pension scheme, you are not required to contribute to it if you don’t want to. Typically, you’ll be given the chance to opt out once you’ve been enrolled.

However, it’s very important that you do save for your future so we strongly advise you to stay enrolled in your employer’s chosen workplace pension scheme, unless you’ve already made sufficient provision for yourself.

Even if you have your own personal pension, we’d still advise you to look in detail at your employer’s scheme before you decide to opt out of it.

If you’re with Orange Genie

If you’re lucky enough to be with employed by Orange Genie, we’ll enrol you into our pension scheme the first time we pay you after you’ve been with us for three months. If you prefer not to wait, speak to our Contractor Support team for information about how to enrol early.

We choose our pension provider with great care, and we regularly review that decision to make sure we’re doing the best we can for our contractor employees.

You can access the details of your pension, see how much has built up through employee and employer contributions, make decisions about how your fund should be invested and track the performance of those investments, all from the Pay and Pension section of your Orange Genie Edge portal.

If you have any questions or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com

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