Financial Planning for Contractors & Salary Sacrifice Pension Options
Contracting is a lifestyle and career choice many people have chosen for the greater flexibility and earning power it offers. However, this greater freedom also means that you have a bigger responsibility to maintain financial stability and ensure that your hard-earned money is working for you.
Financial planning tailored to you
At Sapphire, part of our offering is to give our contractors access to independent financial planning advice. Our experts can help ensure you’re saving enough for retirement, getting the most from your investments and have sufficient protection in place for you and your family in the event of ill health or worse.
Planning your retirement
Pensions offer great tax benefits and should be an important requirement when choosing an Umbrella provider, especially if you are a higher rate taxpayer. At Sapphire, our financial planners can help with:
- Making Payments into any existing Private Pension
You may already have a private pension or SIPP set up and simply want Sapphire to continue to process payments into this pension. Sapphire will operate your contributions via Salary Sacrifice and give our contractors the full saving of Income Tax, Employees NI and Employers NI – which is not feasible via agency PAYE or other payroll schemes. We charge a £5 per week admin fee to administer this additional service, with payments deducted from your income weekly or monthly (dependant on your pay frequency) and paid to your pension provider monthly.
- Setting up a pension
If you don’t already have a pension set up, then it might be something you want to consider. By contributing a monthly amount to your pension, you can then start to build up a fund that will help you achieve the retirement you want. Our financial planners can look at the benefits of a workplace pension and personal pension and also help ensure you are in the right portfolio funds based on your stage in life and attitude to risk.
- Reviewing existing pensions
You may have several pension pots from different schemes. As part of our financial planners review process, they can look at all your different pensions and ensure the portfolios match your level of risk. They can also consolidate your pensions into one easy to manage plan.
What is Salary Sacrifice?
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit such as Pension contributions and allows these contributions to be paid tax-free. A salary sacrifice arrangement must not reduce an employee’s cash earnings below NMW and must be a fixed amount or percentage deduction each week or month.
Are there limits?
There is currently a £40,000 annual limit on the total amount that can be contributed to all your pension savings. You could contribute more to your pension over the £40,000 limit but you wouldn’t receive the tax benefits that the first £40,000 gains. If you earn over £200,000 per annum, then your annual allowance will be reduced by £1 for every £2 you earn over this amount. More information on the annual allowance can be found here.
How much can I save?
Salary Sacrifice contributions via Sapphire’s Umbrella service give our employees the full tax benefit of Income-tax, Employees and Employers NI. As a rough guide, for every £200 per week a higher rate of taxpayer pays into a Private Pension via Salary Sacrifice you would save £100 in tax.
Can I change the amounts I pay into my pension?
Under Salary Sacrifice rules and to ensure you receive the tax benefits that this affords, the amounts deducted each week or month must remain the same and be agreed upon upfront with your employer (Sapphire). The amount can only be changed if there’s an extreme change in your circumstances.
As your employer, we are still required by law to opt you into an Auto Enrolment pension. You can opt-out of this pension and if any contributions are taken for auto-enrolment before you opt-out then these can be reimbursed to you.
Further reducing your tax liability
We understand that sometimes tax can be frustrating. Although Sapphire will work hard to ensure you only pay the tax required, a good financial planner can help ensure you maximise available allowances and reduce your tax liability further. Whether it be through savings or inheritance tax planning, it’s always worth having a conversation to find out more.
If you’d like to set up pension contributions or speak to a financial advisor please speak to our onboarding team on 01625 539997 or email email@example.com