Umbrella pension options - handhold required!

[TonyMakeroni]

I’m a higher rate umbrella contractor trying to opt into the salary sacrifice scheme they offer but it’s not going very well. It involves paper forms being signed and posted back and forth between me, my umbrella and the SIPP, which keep going missing at various stages of the process.

I’ve spent hours on the phone, printing things out, filling in forms, posting things and following up and I’m wondering if it’s worth the continued hassle.

In order to decide, I’m trying to figure out how much I’d be losing out if I just pay £400 a month into a SIPP myself, but I keep getting stuck.

If I’m understanding correctly, when I contribute £400 to the SIPP, I should get an extra £100 added to it (20% tax relief) and another £100 (+20% higher rate tax relief) back via self-assessment.

So when I get the £100 back I’d have essentially paid £300 for £500 in my pension.

Is this right so far?

With salary sacrifice, if I ‘sacrificed’ £500 a month I’d get £500 straight into my pension (no additional top ups).

If I hadn’t ‘sacrificed’ that £500, it would have been taxed at 40% before it got to me, and I’d have received £300 of it. Which seems to work out equal to the above.

EXCEPT I now realise the above calculation doesn’t account for employers NI, employees NI and apprenticeship levy and the umbrella fee (£100 a month).

So if I hadn’t sacrificed the £500, I guess the amount that would have reached me would have been subject to all these too.

So in reality I’d have received less than £300.

This is where I get stuck.

Does anyone know how of the £500 I’d actually receive with the above taken into account? I think employers NI is around 12% and apprenticeship levy 0.5%.

I think the difference between this figure and £300 is the amount I’m ‘losing out’ on a month by not being on the salary sacrifice scheme (happy to be corrected though).

Any help would be hugely appreciated.

[eek]

Let's keep this simple and start with a round £10000 a month.

Salary Sacrifice for most umbrellas will be off the headline figure - so they will take their margin £100 then the £4000 say in pension and then deduct employer NI from the rest say £5900..

If you are paying it from post tax income then you are losing the Employer NI portion of that money as the employer Ni is being taken from all £9900 (after umbrella fee) so by not using Salary Sacrifice you are sending HMRC 14.3% of £4000 or £500 instead of putting it into your pension pot.

Note - I'm ignoring how higher rate tax relief works on pensions because it's insane for us to do it that way - you want your limited company or umbrella to do it for you based on the headline assignment fee rate. Tax relief on additional contributions is something that you only need to worry about if you are an employee because there the employer NI isn't your concern.

[TonyMakeroni]

Let's keep this simple and start with a round £10000 a month.

Salary Sacrifice for most umbrellas will be off the headline figure - so they will take their margin £100 then the £4000 say in pension and then deduct employer NI from the rest say £5900..

If you are paying it from post tax income then you are losing the Employer NI portion of that money as the employer Ni is being taken from all £9900 (after umbrella fee) so by not using Salary Sacrifice you are sending HMRC 14.3% of £4000 or £500 instead of putting it into your pension pot.

Note - I'm ignoring how higher rate tax relief works on pensions because it's insane for us to do it that way - you want your limited company or umbrella to do it for you based on the headline assignment fee rate. Tax relief on additional contributions is something that you only need to worry about if you are an employee because there the employer NI isn't your concern.

Thanks, so it sounds like I’m losing out by about £70 a month by not being in the scheme if I understand correctly. (You mentioned limited so just to confirm I’m not contacting through a limited company, I’m an employee of the umbrella).

[eek]

Thanks, so it sounds like I’m losing out by about £70 a month by not being in the scheme if I understand correctly. (You mentioned limited so just to confirm I’m not contacting through a limited company, I’m an employee of the umbrella).

Yep you are losing out on however much is going into your pension fund * 14.3% so £70 or so a month.

[lucyclarityumbrella]

Hi TonyMakeroni, if you message me and let me know who your SIPP provider is I can tell you if you really need to do all that paperwork

[TonyMakeroni]

Hi TonyMakeroni, if you message me and let me know who your SIPP provider is I can tell you if you really need to do all that paperwork

Thank you, very much appreciated!

[northernladuk]

Thank you, very much appreciated!

You could call her instead but make sure your phone is charged, she can't half talk.

[lucyclarityumbrella]

You could call her instead but make sure your phone is charged, she can't half talk.